-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVqnHwvEmaILsFK0j2wHwvqzctjNtVT8p7fZXgLRBszIqg+lF2CqHOy7NQIlPEuj WRZ5ZRzIK6Ev9WhKDe+u3g== 0001133884-02-000586.txt : 20020510 0001133884-02-000586.hdr.sgml : 20020510 ACCESSION NUMBER: 0001133884-02-000586 CONFORMED SUBMISSION TYPE: SC TO-I PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20020510 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BILLSERV INC CENTRAL INDEX KEY: 0001088034 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 980190072 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I SEC ACT: 1934 Act SEC FILE NUMBER: 005-58445 FILM NUMBER: 02641631 BUSINESS ADDRESS: STREET 1: 211 N LOOP 1604 STREET 2: SUITE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78232 BUSINESS PHONE: 2104025000 MAIL ADDRESS: STREET 1: 211 N LOOP 1604 STREET 2: STE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78232 FORMER COMPANY: FORMER CONFORMED NAME: BILLSERV COM INC DATE OF NAME CHANGE: 19990607 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BILLSERV INC CENTRAL INDEX KEY: 0001088034 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 980190072 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I BUSINESS ADDRESS: STREET 1: 211 N LOOP 1604 STREET 2: SUITE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78232 BUSINESS PHONE: 2104025000 MAIL ADDRESS: STREET 1: 211 N LOOP 1604 STREET 2: STE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78232 FORMER COMPANY: FORMER CONFORMED NAME: BILLSERV COM INC DATE OF NAME CHANGE: 19990607 SC TO-I 1 gsctoi-28507.txt ISSUER TENDER OFFER SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- SCHEDULE TO (Rule 14d-100) TENDER OFFER STATEMENT UNDER SECTION 14(d) (1) or 13(e) (1) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- BILLSERV, INC. (Name of Subject Company (Issuer) and Filing Person (Offeror)) -------------- Options to Purchase Common Shares, Par Value $0.01 Per Share, Granted to Eligible Employees Under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan and to Eligible Directors Under Billserv, Inc.'s 1999 Non-Employee Director Plan Having an Exercise Price of $4.00 or More (Title of Class of Securities) -------------- 090181108 (CUSIP Number of Class of Securities) Marshall N. Millard Senior Vice President, General Counsel and Secretary Billserv, Inc. 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 210-402-5030 (Name,address and telephone number of person authorized to receive notices and communications on behalf of filing person) -------------- Copy to: Timothy N. Tuggey Loeffler Jonas & Tuggey 755 East Mulberry, Suite 200 San Antonio, Texas 78212 210-354-4300 -------------- CALCULATION OF FILING FEE Transaction valuation* Amount of filing fee ---------------------- -------------------- $232,653 $46.53 * Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 975,425 common shares of Billserv, Inc. having an aggregate value of $232,653 as of May 10, 2002, will be exchanged pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. The amount of the filing fee, calculated in accordance with Rule 0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the value of the transaction. |_| Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not applicable. Form or Registration No.: Not applicable. Filing party: Not applicable. Date filed: Not applicable. |_| Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: |_| third party tender offer subject to Rule 14d-1. |X| issuer tender offer subject to Rule 13e-4. |_| going-private transaction subject to Rule 13e-3. |_| amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: |_| - -------------------------------------------------------------------------------- Item 1. Summary Term Sheet. The information set forth under "Summary Term Sheet" in the Offer to exchange, dated May 10, 2002 (the "Offer to Exchange"), attached hereto as Exhibit (a)(1), is incorporated herein by reference. Item 2. Subject Company Information. (a) The name of the issuer is Billserv, Inc., a corporation organized under the laws of Nevada ("Billserv" or the "Company"), the address of its principal executive offices is 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232, and the telephone number of its principal executive offices is (210) 402-5000. The information set forth in the Offer to Exchange under Section 9 ("Information Concerning Billserv, Inc.") is incorporated herein by reference. (b) This Tender Offer Statement on Schedule TO relates to an offer by the Company to exchange Eligible Options (as defined in the Offer to Exchange) granted to Eligible Employees or Eligible Directors (as defined in the Offer to Exchange) for new options (the "New Options") to purchase common shares of the Company (the "Common Shares"), to be granted under the Option Plans (as defined in the Offer to Exchange), upon the terms and subject to the conditions described in the Offer to Exchange and the related cover letter and acceptance letter (the "Acceptance Letter") (which together, as they may be amended from time to time, shall constitute the "Offer"), attached hereto as Exhibit (a)(2). The information set forth in the Offer to Exchange under "Summary Term Sheet," "Questions and Answers," Section 1 ("Eligible Options, Eligible Employees and Eligible Directors; Expiration Date"), Section 5 ("Acceptance of Eligible Options for Exchange and Issuance of New Options") and Section 8 ("Source and Amount of Consideration; Terms of New Options ") is incorporated herein by reference. (c) The information set forth in the Offer to Exchange under Section 7 ("Price Range of Common Stock Underlying the Eligible Options") is incorporated herein by reference. Item 3. Identity and Background of Filing Person. The information set forth under Item 2(a) above is incorporated herein by reference. Item 4. Terms of the Transaction. (a) The information set forth in the Offer to Exchange under "Summary Term Sheet," "Questions and Answers," Section 1 ("Eligible Options; Eligible Employees and Eligible Directors; Expiration Date"), Section 3 ("Procedures for Tendering Eligible Options"), Section 4 ("Withdrawal Rights"), Section 5 ("Acceptance of Eligible Options for Exchange and Issuance of New Options"), Section 6 ("Conditions of the Offer"), Section 8 ("Source and Amount of Consideration; Terms of New Options"), Section 11 ("Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer"), Section 12 ("Legal Matters; Regulatory Approvals"), Section 13 ("Material U.S. Federal Income Tax Consequences"), and Section 14 ("Extension of Offer; Termination; Amendment") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options and Our Common Shares") is incorporated herein by reference. Item 5. Past Contacts, Transactions, Negotiations and Arrangements. The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options and Our Common Shares") is incorporated herein by reference. Item 6. Purposes of the Transaction and Plans or Proposals. (a) The information set forth in the Offer to Exchange under Section 2 ("Purpose of the Offer") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 5 ("Acceptance of Eligible Options for Exchange and Issuance of New Options") and Section 11 ("Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer") is incorporated herein by reference. (c) Except as set forth in the Offer to Exchange under Section 9 ("Information Concerning Billserv, Inc."), Section 16 ("Additional Information") and Section 17 ("Forward Looking Statements"), the Company does not have any plans, proposals or negotiations that relate or would result in any of the events described in Item 1006(c) of Regulation M-A. Item 7. Source and Amount of Funds or Other Consideration. (a) The information set forth in the Offer to Exchange under Section 8 ("Source and Amount of Consideration; Terms of New Options") and Section 15 ("Fees and Expenses") is incorporated herein by reference. (b) The information set forth in the Offer to Exchange under Section 6 ("Conditions of the Offer") is incorporated herein by reference. (d) Not applicable. Item 8. Interest in Securities of the Subject Company. (a) Not applicable. (b) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options and Our Common Shares") is incorporated herein by reference. Item 9. Person/Assets, Retained, Employed, Compensated or Used. Not applicable. Item 10. Financial Statements. The information set forth in the Offer to Exchange under Section 9 ("Information Concerning Billserv, Inc.") and Section 16 ("Additional Information") and the information set forth on pages 11-40 of the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2001 is incorporated herein by reference. Item 11. Additional Information. (a) The information set forth in the Offer to Exchange under Section 10 ("Interests of Directors and Officers; Transactions and Arrangements Concerning the Options and Our Common Shares") and Section 12 ("Legal Matters; Regulatory Approvals") is incorporated herein by reference. (b) Not applicable. Item 12. Exhibits. (a) (1) Offer to Exchange, dated May 10, 2002. (2) Form of Acceptance Letter. (3) Form of Withdrawal Letter. (4) Form of Cover Letter to Employees and Directors Accompanying Offer to Exchange. (b) Not applicable. (d) (1) Billserv Inc.'s 1999 Employee Comprehensive Stock Plan. (2) Billserv Inc.'s 1999 Non-Employee Director Plan. (3) Form of Instrument of Grant pursuant to Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan. (4) Form of Instrument of Grant pursuant to Billserv, Inc.'s 1999 Non-Employee Director Plan. (g) Not applicable. (h) Not applicable. Item 13. Information Required by Schedule 13E-3. Not applicable. SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct. Billserv, Inc. /s/ Terri A. Hunter ---------------------------------------- Terri A. Hunter Executive Vice President and Chief Financial Officer Date: May 10, 2002 INDEX TO EXHIBITS Exhibit Number Description - ------- -------------- (a) (1) Offer to Exchange, dated May 10, 2002. (a) (2) Form of Acceptance Letter. (a) (3) Form of Withdrawal Letter. (a) (4) Form of Cover Letter to Employees Accompanying Offer to Exchange (d) (1) Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan. (d) (2) Billserv, Inc.'s 1999 Non-Employee Director Plan. (d)(3) Form of Instrument of Grant pursuant to Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan. (d) (4) Form of Instrument of Grant pursuant to Billserv, Inc.'s 1999 Non- Employee Stock Plan. EX-99.(A)(1) 3 gex99a1-28507.txt OFFER TO EXCHANGE Exhibit (a) (1) BILLSERV, INC. OFFER TO EXCHANGE OUTSTANDING OPTIONS GRANTED TO ELIGIBLE EMPLOYEES UNDER BILLSERV, INC.'S 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN AND TO ELIGIBLE DIRECTORS UNDER BILLSERV, INC.'S 1999 NON-EMPLOYEE DIRECTOR PLAN HAVING AN EXERCISE PRICE OF $4.00 OR MORE FOR NEW OPTIONS THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., CENTRAL TIME ON JUNE 11, 2002, UNLESS THE OFFER IS EXTENDED BY BILLSERV, INC. Any questions or requests for assistance or additional copies of any documents referred to in the offer to exchange may be directed to: Billserv, Inc. Attention: Option Exchange Program c/o Marshall N. Millard Senior Vice President, General Counsel and Secretary 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 (210) 402-5030 May 10, 2002 TABLE OF CONTENTS Page SUMMARY TERM SHEET.......................................................... 4 QUESTIONS AND ANSWERS....................................................... 10 THE OFFER TO EXCHANGE....................................................... 22 1. Eligible Options; Eligible Employees and Eligible Directors; Expiration Date....................................................... 22 2. Purpose of the Offer.................................................. 23 3. Procedures for Tendering Eligible Options............................. 24 4. Withdrawal Rights..................................................... 25 5. Acceptance of Eligible Options for Exchange and Issuance of New Options........................................... 26 6. Conditions of the Offer............................................... 27 7. Price Range of Common Stock Underlying the Eligible Options.................................................. 29 8. Source and Amount of Consideration; Terms of New Options........................................................... 30 9. Information Concerning Billserv, Inc.................................. 35 10. Interests of Directors and Officers; Transactions and Arrangements Concerning the Options and Our Common Shares......................................................... 35 11. Status of Eligible Options Acquired by Us in the Offer; Accounting Consequences of the Offer.................................. 36 12. Legal Matters; Regulatory Approvals................................... 37 13. Material U.S. Federal Income Tax Consequences......................... 37 14. Extension Of Offer; Termination; Amendment............................ 38 2 15. Fees And Expenses..................................................... 39 16. Additional Information................................................ 39 17. Forward Looking Statements............................................ 41 18. Miscellaneous......................................................... 41 SCHEDULE A Information Concerning The Directors and Board Appointed Officers of Billserv, Inc....................................... 43 EXHIBIT 1 Form of Acceptance Letter........................................ 44 EXHIBIT 2 Form of Withdrawal Letter........................................ 51 3 BILLSERV, INC. OFFER TO EXCHANGE OUTSTANDING OPTIONS GRANTED TO ELIGIBLE EMPLOYEES UNDER BILLSERV, INC.'S 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN AND TO ELIGIBLE DIRECTORS UNDER BILLSERV, INC.'S 1999 NON-EMPLOYEE DIRECTOR PLAN HAVING AN EXERCISE PRICE OF $4.00 OR MORE FOR NEW OPTIONS THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., CENTRAL TIME ON JUNE 11, 2002, UNLESS THE OFFER IS EXTENDED BY BILLSERV, INC. Billserv, Inc., which we refer to as "we," "the company" or "Billserv," is offering eligible employees and eligible directors the opportunity to exchange all eligible options for new options that we will grant under our option plans. We are making this offer upon the terms and subject to the conditions set forth in this offer to exchange and in the related cover letter and acceptance letter (which together, as they may be amended from time to time, constitute the "offer"). SUMMARY TERM SHEET The following is a summary of the material terms of the offer. We urge you to read carefully the remainder of this offer to exchange and the accompanying acceptance letter attached to the end of this document because the information in this summary is not complete, and additional important information is contained in the remainder of this offer to exchange and the acceptance letter. We have included references to the relevant sections in this offer to exchange where you can find a more complete description of the topics in this summary. o Offer. Billserv is offering eligible employees and eligible directors the opportunity to exchange all, but not less than all, of the eligible options held by an eligible employee or an eligible director for new options to be granted under Billserv's 1999 Employee Comprehensive Stock Plan or Billserv's 1999 Non-Employee Director Plan. o All Eligible Options Must Be Tendered. To participate in the offer, an eligible employee or eligible director must tender all of his or her eligible options for cancellation. This means that an eligible employee or eligible director may not tender some of his or her eligible options for cancellation and retain some eligible options; if an eligible employee or eligible director wishes to tender 4 any of his or her eligible options, the eligible employee or eligible director must tender all of his or her eligible options. (Section 1) o Eligible Employees. "Eligible employees" are all employees of Billserv who were actively employed or on an authorized leave of absence on May 10, 2002 and on the date the offer expires. An employee will not be considered an "eligible employee" and, accordingly, will not be eligible to participate in this offer if, on or before the date the offer expires, such employee: -- receives a notice of involuntary termination from Billserv; -- resigns or gives notice of resignation from such employment; -- retires or elects to retire from such employment; or -- enters into an agreement with Billserv with respect to such employee's resignation or retirement. (Section 1) o Eligible Directors. "Eligible Directors" are all non-employee directors of Billserv who were directors of Billserv on May 10, 2002 and on the date the offer expires. (Section 1) o Eligible Options. "Eligible options" are all currently outstanding options to purchase common shares that were granted under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan or Billserv, Inc.'s 1999 Non-Employee Director Plan (together, the "option plans") having an exercise price of $4.00 or more. (Section 1) o Offer To Exchange Eligible Options for New Options. We will grant new options to those eligible employees and eligible directors who elect to participate in this offer, subject to the terms and conditions explained in the offer to exchange. We will grant one new option for every eligible option cancelled in the offer. However, we will not issue any new options exercisable for fractional shares. Instead, we will round down to the nearest whole number of new options with respect to each grant of eligible options. Each option entitles the eligible employee or eligible director to purchase one of our common shares in accordance with the terms of the applicable option plan and instrument of grant. (Section 1) o Eligibility Requirements for New Options. To be entitled to a grant of new options, an eligible employee must meet all of the following conditions: -- He or she must be continuously and actively employed by Billserv or on an authorized leave of absence from such employment on the date he or she tenders eligible options for exchange to the date of grant of the new options; and 5 -- He or she must be actively employed by Billserv on the date of grant of the new options or, if he or she is on an authorized leave of absence on the date of grant of the new options, he or she must return to such active employment before February 1, 2003; and -- Prior to the date of grant of the new options, he or she must not have: + received a notice of involuntary termination from Billserv; or + elected to retire or entered into an agreement with Billserv to retire. To be entitled to a grant of new options, an eligible director must have been a non-employee director of Billserv on the date he or she tenders eligible options for exchange to the date of grant of the new options and he or she must be a non-employee director of Billserv on the date of grant of the new options. (Sections 1 and 5) o Grant Date of New Options. We expect to grant the new options on or about December 12, 2002 to eligible employees who are actively employed on that grant date and to eligible directors who are non-employee directors of Billserv on that grant date. However, if the expiration date of the offer is extended by us, the date of grant for the new options may also be extended. As noted below, the grant of new options to an eligible employee who is on an authorized leave of absence on the new option grant date and who returns to active employment before February 1, 2003 will be deferred until after such eligible employee returns to active employment. (Sections 1, 5 and 11) o New Option Grant Date for Eligible Employees On An Authorized Leave of Absence. If you are an eligible employee on an authorized leave of absence on the new option grant date, you will be entitled to a grant of new options only if you return to active employment with Billserv before February 1, 2003. In that event, you will receive a grant of new options within sixty (60) days of the date you return to active employment. The exercise price (also known as the grant price or subscription price) of the new options will be equal to 100% of the market price of one of our common shares on the date of grant of the new options (determined in accordance with and subject to the terms of the option plans). (Sections 1 and 5) o Material Terms Of New Options. The new options will be granted under the same option plan that the related eligible options were granted and we will issue a new option instrument of grant evidencing the new option grant. The new options will have the same terms and conditions as the related eligible options cancelled in the offer, except for the following: 6 -- Exercise Price. The exercise price (also known as the grant price or subscription price) of the new options will be equal to 100% of the market price of one of our common shares on the date of grant of the new options (except as noted below), determined in accordance with the terms of the option plans. -- Three Month Exercise Period after Termination of Employment. The new options will have a term of ten years from the new option grant date. However, as with the cancelled eligible options, the new options are subject to earlier termination in the event of the death of an eligible director or the termination of an eligible employee's employment. In accordance with the terms of the 1999 Employee Comprehensive Stock Plan, all of the eligible employee's new options will remain exercisable for a period of three months following a termination of employment (other than termination that is for cause or that is voluntary on the part of the employee) or possibly longer in certain circumstances such as death or disability. -- Vesting Schedule. The new options will vest over an eighteen (18) month period beginning on the new option grant date. The first vest date will be six (6) months after the new option grant date, when one-third (33 1/3%) of each new option will become vested and exercisable. The second vest date will be six (6) months after the first vest date, also for one-third (33 1/3%) of each new option. The third and final vest date will be six (6) months after the second vest date, when the remaining one-third (33 1/3%) of each new option will vest. Each new option will have a term that expires ten years after the new option grant date. (Sections 5 and 8) o Eligible Employees or Eligible Directors Who Die After the Expiration Date Of The Offer And Prior To The New Option Grant Date. If, after the expiration date of the offer and prior to the new option grant date, you die and, therefore, you are not entitled to a grant of new options, Billserv will attempt to restore your estate or other designated beneficiary to substantially the same position your estate or beneficiary would have been in with respect to your eligible options had you not participated in this offer, in such manner as Billserv determines, in its sole discretion, is appropriate and in compliance with the securities laws of the United States. o Effect on Eligible Options That Are Not Tendered. If you choose not to tender all of your eligible options for exchange or if we do not accept tendered options for exchange or, if having tendered, you withdraw prior to the expiration date, your eligible options will remain outstanding and retain their current exercise prices and other current terms. We currently expect that we will accept all properly tendered eligible options promptly after the expiration of this offer. (Sections 1 and 5) 7 o Options Not Eligible For The Offer To Exchange. The offer will have no effect on those options that are not eligible options. Those options will remain outstanding in accordance with, and subject to, their current terms. (Section 8) o Conditions To The Offer. This offer is subject to conditions that we describe in section 6 of this offer to exchange. (Section 6) o Recent Trading Prices For Our Common Shares. Our common shares are listed for trading on The Nasdaq National Market under the symbol "BLLS." On May 7, 2002, the last reported sales price for our common shares on The Nasdaq National Market was $1.16 per share. We recommend that you obtain current market quotations for our common shares before deciding whether to tender your eligible options. (Section 7) o No Recommendation. Although our board of directors has approved the making of this offer, neither we nor our board of directors makes any recommendation as to whether you should tender or refrain from tendering your eligible options for exchange. You must make your own decision whether to tender your eligible options. o How To Obtain More Information. You should direct questions about this offer or requests for assistance or for additional copies of this offer to exchange or the acceptance letter to Billserv, Inc., Attention: Stock Option Exchange Program, c/o Marshall Millard, 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232; telephone: 210-402-5030. 8 IMPORTANT o How To Participate; How To Accept The Offer. To participate and accept the offer to exchange your eligible options for new options, you must be an eligible employee or an eligible director and you must "tender" all of your eligible options for exchange. If you wish to tender your eligible options for exchange, you must deliver, by hand delivery if you are employed by Billserv in San Antonio, Texas, and by fax or hand delivery if you are an eligible director or you are employed by Billserv anywhere else, the signature page of the acceptance letter, properly completed and signed (using the form of letter attached to the end of this document), to us at Billserv, Inc., Attention: Option Exchange Program, c/o Marshall N. Millard, 211 N. Loop 1604 East, Suite 100, San Antonio, Texas, 78232; facsimile: 210-402-5155. We cannot accept the acceptance letter by e-mail. (Section 3) o Withdrawal Of Election. You can withdraw your election to tender eligible options by delivering, by hand delivery if you are employed by Billserv in San Antonio, Texas, and by fax or hand delivery if you are an eligible director or you are employed by Billserv anywhere else, the signature page of the withdrawal letter, properly completed and signed (using the form of letter attached to the end of this document), to us at the same address or fax number as the acceptance letter. We cannot accept the withdrawal letter by e-mail. You must withdraw all tendered options; you may not withdraw only a portion of tendered options. (Section 4) o Deadline For Elections To Participate Or To Withdraw A Previous Election; "Expiration Date". Your acceptance letter and any withdrawal letter must be received by us before 5:00 p.m., Central Time, on June 11, 2002, unless we extend the expiration date for the offer. If we extend this offer beyond that time, you may tender your eligible options or withdraw a previous election to tender eligible options by delivering the signed signature page to the acceptance or withdrawal letter, as the case may be, so long as we receive your signed signature page before the extended expiration of this offer. (Sections 3 and 4) We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your eligible options pursuant to the offer. You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to give you any information or to make any representation in connection with this offer other than the information and representations contained in this document or in the related acceptance letter attached hereto. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. 9 QUESTIONS AND ANSWERS The following are answers to some of the questions that you may have about this offer. We urge you to read carefully the summary of this offer to exchange, the remainder of this offer to exchange and the accompanying acceptance letter attached to the end of this document because the information in these questions and answers is not complete, and additional important information is contained in the remainder of this offer to exchange and the other documents. 1. WHY ARE WE MAKING THE OFFER? Many of our outstanding options, whether or not they are currently vested and exercisable, have exercise prices that are significantly higher than the current market price of our common shares. For our stock option program to provide the intended retention and performance incentives for employees and directors, employees and directors must feel that our options provide them with an opportunity to realize value within a reasonable period of time. With the uncertainty of current market conditions, we believe that employees and directors may feel that the opportunity for realizing value is limited with their existing options. By making this offer to exchange eligible options for new options, we hope to restore our employees' and directors' confidence in their potential ability to realize value for their eligible options thereby encouraging our employees and directors to remain with Billserv and ultimately maximizing shareholder value. 2. WHAT SECURITIES ARE WE OFFERING TO EXCHANGE? We are offering to exchange all eligible options granted to eligible employees and eligible directors for new options to be granted under our option plans. Eligible options are those options granted to eligible employees under our 1999 Employee Comprehensive Stock Plan and to eligible directors under our 1999 Non-Employee Director Plan that have an exercise price of $4.00 or more and are outstanding on the date options are cancelled in the offer. 3. WHO QUALIFIES AS AN ELIGIBLE EMPLOYEE OR AN ELIGIBLE DIRECTOR? An "eligible employee" is an employee of Billserv who was actively employed or on an authorized leave of absence on May 10, 2002 and is actively employed on the date the offer expires. Also, an employee will not be considered an "eligible employee" and, accordingly, will not be eligible to participate in this offer if, on or before the date the offer expires, such employee: o receives a notice of involuntary termination from Billserv; o resigns or gives notice of resignation from such employment; 10 o retires or elects to retire from such employment; or o enters into an agreement with Billserv with respect to such employee's resignation or retirement. An "eligible director" is a non-employee director of Billserv who was a director of Billserv on May 10, 2002 and a director of Billserv on the date the offer expires. 4. ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT I MUST SATISFY AFTER THE EXPIRATION DATE (CURRENTLY SCHEDULED TO BE JUNE 11, 2002) OF THE OFFER TO RECEIVE THE NEW OPTIONS? To be entitled to the new options after his or her tendered eligible options have been cancelled in the offer, an eligible employee must meet all of the following conditions: o he or she must be continuously and actively employed by Billserv or an authorized leave of absence from such employment from the date he or she tenders eligible options for exchange to the date of grant of the new options; and o he or she must be actively employed by Billserv on the new option grant date or, if he or she is on an authorized leave of absence on the new option grant date, he or she must return to such active employment before February 1, 2003; and o Prior to the new option grant date, he or she must not have: o received a notice of involuntary from Billserv; or o elected to retire or entered into an agreement with Billserv to retire. To be entitled to the new options after his or her tendered eligible options have been cancelled in the offer, an eligible director must be a non-employee director of Billserv from the date he or she tenders eligible options for exchange to the date of grant of the new options and must be a director of Billserv on the new option grant date. We will grant the new options on the later of December 12, 2002 or six months and one day following the date eligible options are cancelled, or promptly thereafter, to eligible employees who are actively employed at Billserv and to eligible directors who are Billserv directors on that grant date. (See question and answer 21 regarding the date that new options will be granted to an eligible employee who is on an authorized leave of absence on the new option grant date 11 and who returns to active employment prior to February 1, 2003). If you do not meet all of the conditions listed above, you will not receive any new options in exchange for your tendered eligible options that have been accepted and cancelled in the exchange. You will also not receive any other consideration or payment under such circumstances for the options tendered. 5. HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS? We will grant one new option for every eligible option cancelled in the offer. However, we will not issue any new options exercisable for fractional shares. Instead, we will round down to the nearest whole number of new options with respect to each grant of eligible options. Each option entitles the eligible employee or eligible director to purchase one of our common shares in accordance with the terms of the applicable option plan and instrument of grant. 6. WILL THE TERMS OF MY NEW OPTIONS BE THE SAME AS THE TERMS OF MY ELIGIBLE OPTIONS? The new options will be issued under the same option plan as the related eligible options cancelled in the offer and will be issued pursuant to an instrument of grant that is substantially similar to the instrument of grant pursuant to which the related eligible options cancelled in the offer were issued. The terms of the new options will be substantially the same as the terms of the related eligible options, except that: o Exercise Price. The exercise price (also known as the grant price or subscription price) of the new options will be equal to 100% of the market price of one of our common shares at closing on the date of grant of the new options (except as noted below), determined in accordance with the terms of the options plans, currently expected to be on or about December 12, 2002 for eligible employees employed at Billserv on that date and eligible directors who are non-employee directors of Billserv on that date. o Three Month Exercise Period after Termination of Employment. The new options will have a term of ten years from the new option grant date. However, as with the cancelled eligible options, the new options are subject to earlier termination in the event of the death of an eligible director or a termination of an eligible employee's employment. In accordance with the terms of the 1999 Employee Comprehensive Stock Plan, all of the eligible employee's new options will remain exercisable for a period of three months following a termination of employment (other than termination that is for cause or that is voluntary on the part of the employee) or possibly longer in certain circumstances such as death or disability. 12 o Vesting Schedule. The new options will vest over an eighteen (18) month period beginning on the new option grant date. The first vest date will be six (6) months after the new option grant date, when one-third (33 1/3%) of each new option will become vested and exercisable. The second vest date will be six (6) months after the first vest date, also for one-third (33 1/3%) of each new option. The third and final vest date will be six (6) months after the second vest date, when the remaining one-third (33 1/3%) of each new option will vest. Each new option will have a term that expires ten years after the new option grant date. 7. WHEN WILL THE NEW OPTIONS BE GRANTED? We will grant the new options on the later of December 12, 2002 or six months and one day following the date eligible options are cancelled, or promptly thereafter, to eligible employees who are actively employed at Billserv on that new option grant date and to eligible directors who are directors of Billserv on that new option grant date. See question and answer 21 regarding the date of grant of new options to eligible employees who are on an authorized leave of absence on the new option grant date and who return to active employment prior to February 1, 2003. 8. WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE? The exercise price (also known as the grant price or subscription price) of the new options will be equal to 100% of the market price for one of our common shares at closing on the date of grant of the new options, determined in accordance with the terms of the option plans. Because the new options will be granted at least six months and one day following the date eligible options are cancelled (or later in the case of certain employees on an authorized leave of absence on that date), we cannot predict the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of your eligible options that are cancelled in the offer. We recommend that you obtain current market quotations for our common shares before deciding whether to tender your eligible options. See Section 7 in the offer to exchange for information concerning our stock price during the past two years. 9. IF I CHOOSE TO TENDER ELIGIBLE OPTIONS FOR EXCHANGE, DO I HAVE TO TENDER ALL OF MY ELIGIBLE OPTIONS? Yes, you must tender all of your eligible options for exchange if you want to participate in this offer. If we were to permit partial tenders of an eligible employee's or an eligible director's eligible options, we could be required under the financial accounting rules applicable to us to recognize significant charges in our financial statements that would reduce our reported earnings for each fiscal quarter that some or all of the new options remained outstanding. If you attempt 13 to tender some of your eligible options but do not include all of your eligible options, your entire tender will be rejected. For example, if you hold eligible options to purchase 3,000 common shares at an exercise price of $11.00 per share and eligible options to purchase 2,000 common shares at an exercise price of $5.00 per share, you must tender either all or none of such eligible options; you cannot tender only those eligible options having an exercise price of $11.00 per share and retain the eligible options having an exercise price of $5.00 per share. 10. WHAT HAPPENS TO ELIGIBLE OPTIONS THAT I TENDER AND ARE ACCEPTED FOR EXCHANGE? Tendered eligible options that are accepted for exchange will be cancelled and will become available for future grants (including the new options) under the option plan under which such eligible options were originally granted. 11. WHY DON'T WE SIMPLY REPRICE THE CURRENT OPTIONS? Repricing outstanding options could require us under the financial accounting rules applicable to us to recognize significant charges in our financial statements that would reduce our reported earnings for each fiscal quarter that the repriced options remained outstanding. This could have a negative impact on our stock price performance. 12. WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE OFFER? If we were to grant the new options on a date that is sooner than at least six months and one day after the date we cancel eligible options tendered for exchange and the new options had an exercise price that was lower than the exercise price of the cancelled eligible options, we could be required under the financial accounting rules applicable to us to recognize significant charges in our financial statements which would reduce our reported earnings for each fiscal quarter that the new options remained outstanding. This could have a negative impact on our stock price performance. 13. WHY CAN'T I JUST BE GRANTED MORE OPTIONS WITHOUT HAVING MY ELIGIBLE OPTIONS CANCELLED? We have a limited pool of options available for grant to our employees and directors. The grant of supplemental options, without the cancellation of outstanding eligible options, would reduce the number of options that are currently available for grant to our employees and directors under the option plans. Because the outstanding eligible options are, to a large extent, "underwater" (i.e., the exercise prices of such options are greater than the current 14 trading price for our common shares), we have determined that it is in the best interest of Billserv and our shareholders (including our employee and director shareholders) to offer this exchange program as designed. Eligible options that are cancelled in this offer will become available for new option grants and future option grants under the option plans. 14. WILL I HAVE TO PAY TAXES IF I EXCHANGE MY ELIGIBLE OPTIONS IN THE OFFER? If you exchange your eligible options for new options, you will not be required under current law to recognize income for U.S. Federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. Further, at the date of grant of the new options, we believe that you will not be required under current law to recognize income for U.S. Federal income tax purposes. However, we strongly recommend that all eligible employees and eligible directors consult with their own tax advisor to determine the tax consequences of this offer. 15. IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE INCENTIVE STOCK OPTIONS? Yes, subject, however, to extraordinary compensation restrictions in the IRS code. We strongly recommend that eligible employees consult with their own tax advisors with respect to this issue. 16. IF I HAVE INCENTIVE STOCK OPTIONS, WHAT HAPPENS IF I ELECT NOT TO EXCHANGE MY ELIGIBLE OPTIONS IN THIS OFFER? You will not be subject to current income tax if you do not elect to exchange your eligible options for new options. We do not believe that our offer to you will change any of the terms of your eligible incentive stock options if you do not accept the offer. If you choose not to exchange your eligible options, we recommend that you consult with your own tax advisor to determine the tax consequences of the sale of the common stock that you will receive when you exercise those options. 17. WHAT ARE THE CONDITIONS TO THE OFFER? The offer is subject to a number of conditions with regard to events that could occur prior to the expiration of the offer. These events include, among other things, a change in accounting principles, a lawsuit challenging the tender offer, or a third-party tender offer for our common shares or other acquisition proposal. These and various other conditions are more fully described in Section 6. Once the offer has expired and the tendered options have been accepted and cancelled in the offer, the conditions will no longer apply, even if the specified 15 events occur during the period between the expiration date and the date of grant of the new options. 18. WILL I BE REQUIRED TO GIVE UP ALL MY RIGHTS TO ELIGIBLE OPTIONS THAT ARE CANCELLED IN THE OFFER? Yes. Once we have accepted your tendered eligible options, such eligible options will be cancelled and you will no longer have any rights with respect to those eligible options. 19. WILL BILLSERV GRANT OPTIONS TO ELIGIBLE EMPLOYEES AND/OR ELIGIBLE DIRECTORS DURING THE PERIOD BETWEEN MAY 10, 2002, THE DATE THIS OFFER COMMENCES, AND THE DATE TENDERED ELIGIBLE OPTIONS ARE CANCELLED? No. To avoid any possible adverse accounting consequences, we intend not to grant options to eligible employees or eligible directors during the period starting on May 10, 2002 (the date the offer commences) and ending on the date tendered eligible options are cancelled. 20. WILL I BE CONSIDERED FOR ADDITIONAL OPTION GRANTS BEFORE THE GRANT DATE OF THE NEW OPTIONS? IF I HAVE ELIGIBLE OPTIONS AND DO NOT PARTICIPATE, WHEN SHOULD I EXPECT TO RECEIVE MY NEXT OPTION GRANT? The focus of the option program for the remainder of 2002 is to provide eligible employees and eligible directors with an opportunity for realizing potential value with respect to their existing eligible options. At this time, it is our intention not to grant additional options for the remainder of the year to employees or directors eligible for the offer, except in extraordinary circumstances. This would apply to both employees and/or directors who choose to tender their eligible options, and those who do not. In addition, if eligible employees and/or eligible directors who tender their eligible options that are cancelled in this offer were granted options prior to the new option grant date, we may be required under the financial accounting rules applicable to us to recognize significant charges in our financial statements. We anticipate returning to a more traditional option granting pattern after the new option grant date, currently anticipated to be December 12, 2002. 21. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I AM ON A LEAVE OF ABSENCE ON THE NEW OPTION GRANT DATE? If you tender your eligible options and they are cancelled in the offer and you are on a leave of absence that is an "authorized leave of absence" on the new option grant date, you will be entitled to a grant of new options only if you return to active employment with Billserv before February 1, 2003. In that event, 16 you will receive a grant of new options within sixty (60) days of the date you return to active employment. The exercise price of the new options will be equal to 100% of the market price for one of our common shares on the date the new options are granted, determined in accordance with the terms of the option plans. 22. WHAT TYPES OF LEAVE OF ABSENCE ARE CONSIDERED "AUTHORIZED LEAVES"? An authorized leave of absence is a leave of absence that has been approved in accordance with policy or practice by Billserv that employs you, at the end of which it is expected that you will return to active employment with Billserv. Authorized leaves include approved bereavement leave, family medical leave, personal medical leave, including short term disability and long term disability, jury duty leave, maternity and paternity leave and military leave. 23. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I RESIGN AFTER THE EXPIRATION DATE OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE? If you resign after the expiration date of the offer and prior to the new option grant date and your eligible options have been tendered and cancelled in the offer, you will not receive a grant of new or replacement options or any other consideration or payment for such tendered and cancelled eligible options. 24. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I DIE AFTER THE EXPIRATION DATE OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE? If you die after the expiration date of the offer and prior to the new option grant date and your eligible options have been tendered and cancelled in the offer, Billserv will attempt to restore your estate or other designated beneficiary to substantially the same position your estate or beneficiary would have been in with respect to your eligible options had you not participated in this offer, in such manner as Billserv determines is appropriate and in compliance with the securities laws. 25. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I RECEIVE A NOTICE OF INVOLUNTARY TERMINATION WITHOUT SEVERANCE AFTER THE EXPIRATION DATE OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE? If, after the expiration date of the offer and prior to the new option grant date, you receive a notice of involuntary termination without severance and your eligible options have been tendered and cancelled in the offer, you will not receive a grant of new or replacement options or any other consideration or payment for such tendered and cancelled eligible options. 17 26. WHAT HAPPENS TO ANY CURRENT OPTIONS GRANTED TO ME UNDER THE OPTION PLANS THAT ARE NOT ELIGIBLE OPTIONS? The offer will have no effect on those options that are not eligible options. Those options will remain outstanding in accordance with, and subject to, their current terms. 27. AFTER THE GRANT OF MY NEW OPTIONS, WHAT HAPPENS IF THE MARKET PRICE OF BILLSERV COMMON SHARES GOES BELOW THE EXERCISE PRICE FOR THOSE NEW OPTIONS? We are making this offer only at this time and due to the unusual stock market conditions that have affected many companies in our industry. This is a unique offer and you should take this into account in deciding whether to participate and tender your eligible options. Billserv is not providing and is not in a position to provide any assurances or predictions as to the market price of our common shares at any time in the future. 28. WHAT HAPPENS TO MY ELIGIBLE OPTIONS IF I CHOOSE NOT TO TENDER OR IF THE COMPANY DOES NOT ACCEPT MY TENDERED ELIGIBLE OPTIONS FOR EXCHANGE? If you choose not to tender all of your eligible options for exchange or if we do not accept tendered eligible options for exchange, your eligible options will remain outstanding and retain their current exercise prices and other current terms. We currently expect that we will accept all properly tendered eligible options promptly after the expiration of this offer. Remember that if you desire to tender any of your eligible options for exchange, you must tender all of your eligible options. If you do not tender all of your eligible options, your entire tender will be rejected. 29. CAN I CONTINUE TO EXERCISE MY VESTED ELIGIBLE OPTIONS BETWEEN MAY 10, 2002 AND THE DATE TENDERED ELIGIBLE OPTIONS ARE CANCELLED? You can exercise vested options, including vested eligible options, during this period. However, eligible options that you exercise during this period will no longer be outstanding and will not be available for cancellation and exchange in the offer. 30. WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL I BE NOTIFIED IF IT IS EXTENDED? 18 The offer expires on June 11, 2002, at 5:00 p.m., Central Time, unless we extend it. Although we do not currently intend to do so, we may, in our discretion, extend the offer at any time. If the offer is extended, we will make an announcement of the extension no later than 9:00 a.m. Central Time on the business day immediately following the previously scheduled expiration of the offer period. If the offer is extended, then the cancellation date for tendered eligible options accepted for exchange and the grant date of the new options may be extended if necessary to avoid the possibility that we would have to recognize any charges in our financial statements that would reduce our reported earnings. Under the accounting rules applicable to us, the new options must be granted more than six months following the date tendered eligible options are cancelled. 31. WHAT DO I NEED TO DO TO TENDER MY ELIGIBLE OPTIONS? If you want to elect to participate in this offer, you need to "tender" your eligible options for exchange which means that you must deliver to us the signed signature page of the acceptance letter (using the form attached at the end of this document). For your tender of eligible options to be effective, we must receive, before 5:00 p.m., Central Time, on June 11, 2002 (or before any extended expiration date for the offer), the signature page of the acceptance letter, properly completed and signed by you. The signed signature page must be delivered to us at Billserv, Inc., Attention: Option Exchange Program, c/o Marshall Millard, 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232 or facsimile: 210-402-5155. If you are an eligible employee who works at Billserv in San Antonio, Texas, we will only accept delivery of the signed signature page of the acceptance letter by hand delivery; if you are an eligible director or an eligible employee who works at Billserv anywhere other than San Antonio, we will only accept delivery of the signed signature page of the acceptance letter by hand delivery or by fax. Delivery by e-mail will NOT be accepted. Your signed signature page must be received by us at the address or facsimile number noted above before 5:00 p.m., Central Time, on June 11, 2002 (or before any extended expiration date for the offer). You must allow for delivery time based on the method of delivery that you choose to ensure we receive your acceptance letter on time. If the offer is extended by us beyond June 11, 2002, we must receive your signed signature page of the acceptance letter before the extended expiration date of the offer. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we expect to accept all properly and timely tendered eligible 19 options that are not validly withdrawn. Subject to our rights to extend, terminate and amend this offer, we currently expect that we will accept all such properly tendered eligible options promptly after the expiration of this offer. 32. DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED ELIGIBLE OPTIONS? You may withdraw your tendered eligible options at any time before 5:00 p.m., Central Time, on June 11, 2002. You must withdraw all tendered eligible options; you may not withdraw only a portion of tendered eligible options. If we extend this offer beyond that time, you may withdraw your tendered eligible options at any time until the extended expiration of this offer. To withdraw tendered eligible options, we must receive the signature page to a withdrawal letter (using the form attached to the end of this document), or a facsimile thereof, properly completed and signed, while you still have the right to withdraw the tendered eligible options. If you are an eligible employee who works at Billserv in San Antonio, Texas, we will only accept delivery of the signed signature page of the withdrawal letter by hand delivery; if you are an eligible director or an eligible employee who works at Billserv anywhere other than San Antonio, we will only accept delivery of the signed signature page of the withdrawal letter by hand delivery or by fax. Once you have withdrawn tendered eligible options, you may re-tender eligible options only by again following the delivery procedures described above in question and answer 31. 33. IF I CHOOSE NOT TO TENDER MY ELIGIBLE OPTIONS FOR EXCHANGE, WHAT DO I HAVE TO DO? Nothing. You do not have to file or deliver any forms or letters if you choose to keep your eligible options and not participate in the offer. 34. HOW WILL I KNOW IF BILLSERV HAS RECEIVED MY SIGNATURE PAGE ELECTING TO TENDER MY ELIGIBLE OPTIONS? We will confirm receipt of your acceptance letter tendering your eligible options (and any withdrawal) shortly after we receive it. Also, after the expiration date of the offer, we will advise you whether or not your tender was accepted. 35. WHAT DOES BILLSERV AND ITS BOARD OF DIRECTORS THINK OF THIS OFFER? Although our board of directors has approved the making of this offer, neither we nor our board of directors makes any recommendation as to whether you should tender or refrain from tendering your eligible options. You must make your own decision whether to tender eligible options. 20 36. HOW SHOULD I DECIDE WHETHER OR NOT TO PARTICIPATE? We understand that this will be an important decision for all eligible employees and directors. Tendering eligible options under the offer does carry risk as there is no guarantee or assurance as to our future stock price performance. The decision to participate must be your personal decision, and will depend largely on your assessment of your existing stock option holdings, and your assumptions about the future overall economic environment, performance of our business, the stock market and our stock price, including your assumptions about the stock price on the grant date of the new options (currently expected to be December 12, 2002), which will be the exercise price of the new options, and the stock price thereafter. 37. WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER? For additional information or assistance, you should contact: Billserv, Inc. Attn: Option Exchange Program c/o Marshall N. Millard 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 telephone: 210-402-5030 facsimile: 210-402-5155 e-mail: marshall.millard@billserv.com 21 THE OFFER TO EXCHANGE 1. ELIGIBLE EMPLOYEES; ELIGIBLE DIRECTORS AND ELIGIBLE OPTIONS; EXPIRATION DATE. Upon the terms and subject to the conditions of the offer, as described in this offer to exchange, we are offering to grant new options under the option plans in exchange for eligible options that are properly tendered by eligible employees or eligible directors in accordance with section 3 (and not validly withdrawn) before the "expiration date," as defined below, and cancelled in the offer. We will not accept partial tenders of eligible options. Therefore, if you choose to participate, you must tender all of your eligible options. "Eligible employees" are all employees of Billserv who were actively employed on May 10, 2002, and on the date the offer expires. An employee will not be considered an "eligible employee" and, accordingly, will not be eligible to participate in this offer if, on or before the date the offer expires, such employee: -- receives a notice of involuntary from Billserv; -- resigns or gives notice of resignation from such employment; -- retires or elects to retire from such employment; or -- enters into an agreement with Billserv with respect to such employee's resignation or retirement. "Eligible directors" are all non-employee directors of Billserv who were directors of Billserv on May 10, 2002, and on the date the offer expires. "Eligible options" are all currently outstanding options to purchase common shares that were granted under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan and Billserv, Inc.'s 1999 Non-Employee Director Plan (together, the "option plans") having an exercise price of $4.00 or more. If all of your eligible options are properly tendered and cancelled in the offer and you are entitled to receive new options, the number of new options you receive will equal the number of eligible options cancelled in the offer. However, we will not issue any new options exercisable for fractional shares. Instead, we will round down to the nearest whole number of new options with respect to each grant of eligible options. Each option entitles the eligible employee or eligible director to purchase one of our common shares in accordance with the terms of the applicable option plan and instrument of grant. The exercise price (also known as the grant price or subscription price) of the new options will be equal to 22 100% of the market price for one of our common shares on the date of grant of the new options, determined in accordance with the terms of the option plans. Because the new options will be granted at least six months and one day following the date eligible options are cancelled, or promptly thereafter, (or later in the case of certain employees on an authorized leave of absence on that date), we cannot predict the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of the eligible options that are cancelled in the offer. We recommend that eligible employees and eligible directors obtain current market quotations for our common shares before deciding whether to tender their eligible options. See section 8 for a description of the determination of market price and for other terms of the new options. The term "expiration date" means 5:00 p.m., Central Time, on June 11, 2002, unless and until we, in our discretion, have extended the period of time during which this offer will remain open, in which event the term "expiration date" refers to the latest time and date at which this offer, as so extended, expires. See section 14 for a description of our rights to extend, delay, terminate and amend the offer. 2. PURPOSE OF THE OFFER. We granted the eligible options outstanding under the option plans for the following purposes: o to provide our employees and directors an opportunity to acquire or increase a proprietary interest in us, thereby allowing us to attract and motivate our employees and directors and create a stronger incentive for our employees and directors to expend maximum effort for our growth and success; and o to encourage our employees and directors to continue their employment or service with us. Many of our outstanding options, whether or not they are currently vested and exercisable, have exercise prices that are significantly higher than the current market price of our common shares. We understand that, for our stock option program to provide the intended retention and performance incentives for our employees and directors, employees and directors must feel that our options provide them with an opportunity to realize value within a reasonable period of time. With the uncertainty of current market conditions, we believe that employees and directors may feel that the opportunity for realizing value is limited with their existing options. By making this offer to exchange eligible options for new options that will have an exercise price equal to 100% of the market price of one of our common shares on the grant date of the new options (determined under and subject to the terms of the option plans), we hope to 23 restore our employees' and directors' confidence in their potential ability to realize value in connection with their employment or service with us thereby encouraging our employees and directors to remain with Billserv and ultimately maximizing shareholder value. Neither we nor our board of directors makes any recommendation as to whether you should tender your eligible options, nor have we authorized any person to make any such recommendation. Note that the new options may have a higher exercise price than some or all of your eligible options. You are urged to evaluate carefully all of the information in this offer and to consult your own investment and tax advisors. You must make your own decision whether to tender your eligible options for exchange. 3. PROCEDURES FOR TENDERING ELIGIBLE OPTIONS. Proper Tender of Eligible Options. To validly tender your eligible options pursuant to this offer, you must, in accordance with the terms of the acceptance letter attached to the end of this document, properly complete, sign and deliver to us the signature page to the acceptance letter (using the form attached to the end of this document) or a facsimile thereof. If you are an eligible employee employed at Billserv in San Antonio, we will only accept delivery of your signature page to the acceptance letter by hand delivery. If you are an eligible director of Billserv or an eligible employee employed at Billserv anywhere else, we will only accept delivery of your signature page to the acceptance letter by hand deliver or by fax. We CANNOT accept delivery by e-mail. We must receive your completed and signed signature page at the following address or fax number: Billserv, Inc., Attention: Option Exchange Program, c/o Marshall Millard, 211 N. Loop 1604, Suite 100, San Antonio, Texas 78232; fax: 210-402-5155, before the expiration of the offer. You should allow sufficient time to ensure timely delivery. Your eligible options will not be considered tendered until we receive them. Determination of Validity; Rejection of Eligible Options; Waiver of Defects; No Obligation to Give Notice of Defects. We will determine, in our discretion, all questions as to form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of eligible options. Our determination of these matters will be final and binding on all parties. We may reject any or all tenders of eligible options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we expect to accept all properly and timely tendered eligible options that are not validly withdrawn. We may also waive any of the conditions of this offer or any defect or irregularity in any tender with respect to any 24 particular eligible options or any particular eligible employee or eligible director. No tender of eligible options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering eligible employee or eligible director or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders, and no one will be liable for failing to give notice of any defects or irregularities. Our Acceptance Constitutes an Agreement. Your tender of eligible options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of this offer and will be controlling, absolute and final, subject to your withdrawal rights under Section 4 below and our acceptance of your tendered eligible options in accordance with Section 5 below. Our acceptance for exchange of your eligible options tendered by you pursuant to this offer will constitute a binding agreement between us and you upon the terms and subject to the conditions of this offer. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered eligible options that have not been validly withdrawn. 4. WITHDRAWAL RIGHTS. You may only withdraw your tendered eligible options in accordance with the provisions of this Section 4. You may withdraw your tendered eligible options at any time before the expiration date. You must withdraw all tendered eligible options; you may not withdraw only a portion of tendered eligible options. If the offer is extended by us beyond that time, you may withdraw your tendered eligible options at any time until the extended expiration of the offer. In addition, unless we accept your tendered eligible options for exchange before 5:00 p.m., Central Time, on July 9, 2002, you may withdraw your tendered options at any time after July 9, 2002. To validly withdraw tendered eligible options, we must receive, at the address set forth in Section 3, the signature page to a withdrawal letter (using the form attached to the end of this document), or a facsimile thereof, signed by you, while you still have the right to withdraw the tendered eligible options. The withdrawal letter must specify the name of the eligible employee or eligible director who tendered the eligible options to be withdrawn. Except as described in the following sentence, the withdrawal letter must be signed by the eligible employee or eligible director who tendered the eligible options to be withdrawn and whose name appears on the instrument or instruments of grant evidencing such eligible options. 25 You may not rescind any withdrawal, and eligible options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender your eligible options before the expiration date by following the procedures described in Section 3. Neither we nor any other person is obligated to give notice of any defects or irregularities in any withdrawal letter, nor will anyone incur any liability for failure to give any such notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of withdrawal letters. Our determination of these matters will be final and binding. 5. ACCEPTANCE OF ELIGIBLE OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS. Upon the terms and subject to the conditions of this offer and as promptly as practicable following the expiration date, we expect to accept for exchange and cancel eligible options properly tendered and not validly withdrawn before the expiration date and to notify all eligible employees and eligible directors who have tendered their eligible options of our acceptance. If we cancel eligible options accepted for exchange on June 11, 2002, you will be granted new options on December 12, 2002, or promptly thereafter, subject to the conditions described below. If the offer is extended, then the grant date of the new options will also be extended if necessary to ensure that the new option grant date is at least six months and one day following the date eligible options are cancelled. To be entitled to the new options after an eligible employee's tendered eligible options have been cancelled in the offer, an eligible employee must meet all of the following conditions: o You must be continuously and actively employed by Billserv or on an authorized leave of absence from such employment from the date you tender eligible options for exchange to the date of grant of the new options; and o You must be actively employed by Billserv on the new option grant date or, if you are on an authorized leave of absence on the new option grant date, you must return to such active employment before February 1, 2003; and o Prior to the new option grant date, you must not have: o received a notice of involuntary from Billserv; or o elected to retire or entered into an agreement with Billserv to retire. 26 If an eligible employee does not meet all of the conditions listed above, an eligible employee will not receive any new options in exchange for his or her tendered eligible options that have been accepted and cancelled in the exchange. He or she will also not receive any other consideration or payment under such circumstances for the options tendered. If an eligible employee is on an authorized leave of absence on the new option grant date, he or she will be entitled to a grant of new options only if he or she returns to active employment with Billserv before February 1, 2003. In that event, he or she will receive a grant of new options within sixty (60) days of the date he or she returns to active employment. To be entitled to the new options after an eligible director's tendered eligible options have been cancelled in the offer, an eligible director must be a non-employee director of Billserv from the date he or she tenders eligible options for exchange to the date of grant of the new options and must be a non-employee director of Billserv on the new option grant date. In the event that, an eligible employee or eligible director tenders eligible options that are cancelled in the offer and after the expiration date of the offer and prior to the new option grant date, dies and, therefore, he or she is not entitled to a grant of new options, Billserv will attempt to restore his or her estate or other designated beneficiary to substantially the same position his or her estate or beneficiary would have been in with respect to your eligible options had he or she not participated in this offer, in such manner as Billserv, in its sole discretion, is appropriate and in compliance with the securities laws. For purposes of this offer, we will be deemed to have accepted for exchange eligible options that are validly tendered and not properly withdrawn, if and when we give oral or written notice to eligible employees and eligible directors of our acceptance for exchange of such eligible options. Subject to our rights to extend, terminate and amend this offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered eligible options that are not validly withdrawn. Promptly after we accept tendered eligible options for exchange, we will send each tendering eligible employee and eligible director a letter indicating the number of eligible options that we have accepted for exchange, the corresponding number of new options and the expected grant date of the new options. All eligible options accepted for exchange will be cancelled on the day of cancellation in the order of the exercise prices under such cancelled eligible options, commencing with those eligible options having the highest exercise price and continuing with eligible options having the next highest exercise price until eligible options having the lowest exercise are cancelled on the cancellation date (i.e., eligible options with an exercise price of $11 will be cancelled before eligible options with an exercise price of $5). 6. CONDITIONS OF THE OFFER. 27 We will not be required to accept any eligible options tendered for exchange, and we may terminate or amend this offer, or postpone our acceptance and cancellation of any eligible options tendered for exchange, in each case, subject to Rule 13e-4(f) (5) under the Securities Exchange Act, if at any time on or after May 10, 2002, and before the expiration date, we determine that any of the following events has occurred and, in our reasonable judgment, the occurrence of the event makes it inadvisable for us to proceed with the offer or to accept and cancel eligible options tendered for exchange: (a) any threatened, instituted or pending action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly challenges the making of this offer, the acquisition of some or all of the tendered options pursuant to this offer, the issuance of new options, or otherwise relates in any manner to the offer or that, in our reasonable judgment, could materially and adversely affect the business, condition (financial or other), income, operations or prospects of Billserv, or otherwise materially impair in any way the contemplated future conduct of our business or materially impair the benefits that we believe we will receive from the offer; (b) any action is threatened, pending or taken, or any approval, exemption or consent is withheld, withdrawn or provided subject to conditions, or any statute, rule, regulation, judgment, order or injunction is threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the offer or us or any of our subsidiaries, by any court or any authority, agency or tribunal or any consent, approval, exemption or exemption order required to be obtained from any government or governmental, regulatory or administrative agency, authority or tribunal is not obtained, is withdrawn or is subject to conditions, in any such case that, in our reasonable judgment, would or might directly or indirectly: (1) make the acceptance for exchange of, or issuance of new options for, some or all of the tendered eligible options illegal or otherwise restrict or prohibit consummation of the offer or otherwise relates in any manner to the offer; (2) delay or restrict our ability, or render us unable, to accept for exchange, or grant or issue new options for, some or all of the tendered eligible options; (3) materially impair the benefits that we believe we will receive from the offer; (4) require that we obtain shareholder approval of the offer; or 28 (5) materially and adversely affect the business, condition (financial or other), income, operations or prospects of us, or otherwise materially impair in any way the contemplated future conduct of our business; (c) any change, development, clarification or position taken in generally accepted accounting standards which could or would require us for financial reporting purposes to record compensation expense against our earnings in connection with the offer or the grant of the new options; (d) a tender or exchange offer with respect to some or all of our common shares, or a merger or acquisition proposal for us, is proposed, announced or made by another person or entity or is publicly disclosed; or (e) any change or changes or proposed change or changes occur in our business, condition (financial or other), assets, income, operations, prospects or share ownership that, in our reasonable judgment, is or may be material to us or materially impairs or impacts or may materially impair or impact the benefits that we believe we will receive from the offer. The conditions to the offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them prior to the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances is not a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this section 6 will be final and binding upon everyone. 7. PRICE RANGE OF COMMON STOCK UNDERLYING THE ELIGIBLE OPTIONS. Our common shares are traded on The NASDAQ National Market under the symbol "BLLS." The following table shows, for the periods indicated, the high and low closing sales price per common share as reported by The NASDAQ National Market at the times indicated: 29 NASDAQ ---------------------- High Low ------- ------- (rounded to nearest 1/100th) Fiscal year ended December 31, 2000 Third Quarter $9.19 $6.25 Fourth Quarter $7.75 $2.06 Fiscal year ending December 31, 2001 First Quarter $4.44 $2.16 Second Quarter $3.05 $1.88 Third Quarter $2.20 $0.73 Fourth Quarter $1.55 $0.80 Fiscal year ending December 31, 2002 First Quarter $0.25 $0.90 Second Quarter (through May 7, 2002) $1.20 $1.02 As of May 7, 2002, the last reported sale price of our common shares, as reported on The NASDAQ National Market was $1.16 per share. We recommend that you obtain current market quotations for our common stock before deciding whether to tender your eligible options. 8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS. Consideration. We will issue new options options to purchase our common shares under the applicable option plan (the same option plan under which the related eligible options were originally granted) in exchange for eligible options properly tendered and cancelled in the offer by us, subject to the terms set forth in the offer. We will grant new options to those eligible employees and eligible directors who elect to participate in this offer, subject to the terms and conditions explained in the offer to exchange. We will grant one new option for every eligible option cancelled in the offer. Each option entitles the eligible employee or eligible director to purchase one of our common shares in accordance with the terms of the applicable option plan and instrument of grant. As of May 7, 2002, approximately 4,121,305 options were issued and outstanding. Of these options, approximately 975,425 options (representing 23.67% of all such options) were held by eligible employees and eligible directors and had an exercise price of $4.00 or more. 30 If we receive and accept tenders of all eligible options, we expect to grant a total of approximately 975,425 new options, assuming all eligible employees and eligible directors who have tendered their eligible options are entitled to a grant of new options. General Terms of New Options. The new options will be issued under the same option plan under which the related eligible options were originally granted. We will issue a new instrument of grant evidencing all new options granted pursuant to this offer. The instrument of grant evidencing all new options granted under the 1999 Employee Comprehensive Stock Plan will be substantially the same as the form of instrument of grant attached as Exhibit (d)(2) to the Tender Offer Statement on Schedule TO that we filed with the SEC on May 10, 2002. The instrument of grant evidencing all new options granted under the 1999 Non-Employee Director Plan will be substantially the same as the form of instrument of grant attached as Exhibit (d)(4) to the Tender Offer Statement on Schedule TO that we filed with the SEC on May 10, 2002. The issuance of new options under this offer will not create any contractual or other right of the recipients to receive any future grants of stock options or benefits instead of stock options or any right of continued employment. Description of Option Plans and New Options The following description of the option plans and the new options is only a summary, and may not be complete. For complete information please refer to the copies of the option plans and the forms of new option instruments of grant that have been filed with the SEC as exhibits to the Tender Offer Statement on Schedule TO. You may also contact us at Billserv, Inc., Attention: Option Exchange Program, c/o Marshall Millard, 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232 to request copies of the option plans or the forms of the new option instruments of grants, which will be provided at our expense. The following description summarizes the material terms of the option plans and the new options to be granted under the option plans. The maximum number of our common shares available for issuance upon exercise of options granted under the 1999 Employee Comprehensive Stock Plan (the "Comprehensive Plan") is currently five (5) million. The Comprehensive Plan permits the grant of non-qualified stock options and options that qualify as "incentive stock options" under the U.S. Internal Revenue Code. Both non-qualified stock options and incentive stock options are subject to this offer with respect to eligible employees. 31 Under the Comprehensive Plan, all full-time employees of Billserv are eligible for grants of options to acquire our common shares. The Comprehensive Plan and the Director Plan, described below, are administered by a committee (the "Committee") appointed by the Board of Directors to administer the plans. The Committee determines to whom grants of options to acquire our common shares are made based on such factors as the Committee may deem relevant. The Committee also determines the terms and conditions of the options, including the number of options, the effective date of grant, and the option exercise period and vesting schedule. The maximum number of our common shares available for issuance upon exercise of options granted under the 1999 Non-Employee Director Plan (the "Director Plan") is currently 500,000. The Director Plan only permits the grant of non-qualified stock options. Thus, only non-qualified stock options are subject to this offer with respect to eligible directors. All new options that may be granted pursuant to this offer to eligible directors will also be non-qualified options. Under the Director Plan, all non-employee directors of Billserv are entitled to grants of options to acquire our common shares under the terms of the Director Plan. The Director Plan is administered by the Committee, which determines the rules and regulations for carrying out the purposes of the Plan. An eligible employee who tenders eligible options that are cancelled pursuant to this offer will receive a grant of new options only if such eligible employee meets all of the following conditions: o The eligible employee is continuously and actively employed by Billserv or on an authorized leave of absence from such employment from the date he or she tenders eligible options for exchange to the date of grant of the new options; and o The eligible employee is actively employed by Billserv on the new option grant date or, if the eligible employee is on an authorized leave of absence on the new option grant date, the eligible employee returns to such active employment before February 1, 2003; and o Prior to the new option grant date, the eligible employee must not have: o received a notice of involuntary from Billserv; or o elected to retire or entered into an agreement with Billserv to retire. If an eligible employee does not meet all of the conditions listed above, such eligible employee will not receive any new options in exchange for tendered 32 eligible options that have been cancelled in the offer. That eligible employee will also not receive any other consideration or payment under such circumstances for the options tendered. An eligible director who tenders eligible options that are cancelled pursuant to this offer will receive a grant of new options only if such eligible director is a non-employee director of Billserv from the date he or she tenders eligible options for exchange to the date of grant of the new options and the eligible director is a non-employee director of Billserv on the new option grant date. If an eligible director does not meet all of the conditions listed above, such eligible director will not receive any new options in exchange for tendered eligible options that have been cancelled in the offer. That eligible director will also not receive any other consideration or payment under such circumstances for the options tendered. The exercise price payable by an eligible employee or an eligible director for a common share of Billserv covered by an option is established by the Committee, but cannot be less than the par value of the shares subject to the option. In addition, the option exercise price per share with respect to Incentive Stock Options cannot be less than the fair market value of the shares subject to the option. In accordance with the terms of the option plans, the fair market value is the closing price of our common shares on the date of grant of the option as reported on The NASDAQ National Market. The exercise price (also known as the grant price or subscription price) of the new options will be equal to 100% of the market price of a common share on the date of grant of the new options, determined under the terms of the option plans. The new options will be granted on the later of December 12, 2002, and six months and one day following the date that eligible options are cancelled, or promptly thereafter, to eligible employees actively employed at Billserv on that date and eligible directors who are non-employee directors of Billserv on that date, and, accordingly, we cannot predict the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of your eligible options tendered and cancelled in the offer. We recommend that you obtain current market quotations for our common shares before deciding whether to tender your eligible options. Upon the exercise of an option, including the new options, the eligible employee or director pays the exercise price in a manner acceptable to the Committee. In general, the Committee may establish the term of options granted under the option plans and any vesting requirements applicable to options. The term of the new options granted under the option plans will commence on the effective 33 date of grant of the new options and, subject to the applicable vesting requirements, will be exercisable during the period beginning on the effective date of grant of the new options and ending on the day before the tenth anniversary of the effective date of grant of the new options, except that the period for exercise of the new options will end on an earlier date in the event of the death of an eligible director or the termination of an eligible employee's employment. In accordance with the terms of the Comprehensive Plan, all of the eligible employee's new options will remain exercisable for a period of three months following a termination of employment (other than termination that is for cause or that is voluntary on the part of the employee) or possibly longer in certain circumstances such as death or disability. The vesting schedule of the new options will be as follows: The new options will vest over an eighteen (18) month period beginning on the new option grant date. The first vest date will be six (6) months after the new option grant date, when one-third (33 1/3%) of each new option will become vested and exercisable. The second vest date will be six (6) months after the first vest date, also for one-third (33 1/3%) of each new option. The third and final vest date will be six (6) months after the second vest date, when the remaining one-third (33 1/3%) of each new option will vest. Each new option will have a term that expires ten years after the new option grant date. In general, under the option plans, our Board of Directors may from time to time change, suspend or terminate one or both of the option plans or amend the terms of the options plans and any outstanding options under the option plans, including amendments to the option plans prior to the grant date of the new options, provided any approvals required under applicable law or stock exchange rules are obtained and, generally, no amendment, suspension or termination can be made to outstanding options that could adversely affect the existing rights of an eligible employee or eligible director without his or her consent. We do not presently anticipate that our board will make any material amendments to the option plans prior to the date of grant of the new options other than amendments that the board considers necessary or desirable to comply with local tax or regulatory requirements or in connection with the offer. Appropriate adjustments may be made by our Board of Directors to the number or kind of shares covered by options, both as to options granted or to be granted, including the new options, and to the exercise price per share, to give effect to adjustments to the number of our common shares or types of our securities which result from certain corporate transactions. This summary of the option plans and the new options is qualified in its entirety by the specific language of the option plans and applicable instruments of grant, copies of which are available upon request to our Option Exchange Program at the number or address set forth in Section 3. 34 No Stockholder Rights and Employment Rights. Optionholders have no stockholder rights with respect to any of our common shares subject to outstanding options until such shares are purchased in accordance with the provisions of the applicable option plan and instrument of grant. Nothing in either of the option plans confers upon any optionholder any right to continued employment. Registration of Common Shares. All of our common shares issuable upon exercise of options under the option plans, including the shares that will be issuable upon exercise of all new options to be granted pursuant to the offer, have been registered under the Securities Act on a registration statement on Form S-8 filed with the SEC. You will be able to sell your common shares issued upon exercise of new options free of any transfer restrictions under applicable securities laws. Tax Consequences. You should refer to sections 13 for a discussion of the U.S. Federal income tax consequences of accepting or rejecting this offer to tender eligible options for cancellation and of the grant of the new options under this offer to exchange. We recommend that you consult with your own tax advisor to determine the tax consequences of the offer. 9. INFORMATION CONCERNING BILLSERV. The address of our principal executive office is 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232, where the telephone number is 210-402-5000. Our Internet address on the worldwide web is http://www.billserv.com. Information contained on our website does not constitute a part of this offer to exchange. For additional information regarding Billserv, we recommend that you also review the materials that we have filed with the SEC and have listed in Section 16. Except as otherwise disclosed in this offer to exchange or in our SEC filings, we presently have no plans, proposals or negotiations of a type that are required to be disclosed in this offer to exchange under applicable securities laws. 10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OPTIONS AND OUR COMMON SHARES. A list of our directors and senior executives is attached to this offer as Schedule A. As of May 7, 2002, such persons, as a group, beneficially owned a 35 total of approximately 2,138,000 options, which represented approximately 52% of all options outstanding as of that date. During the 60 days prior to May 10, 2002, no options were granted to any of Billserv's directors or senior executives, and other than ordinary course grants of stock options to newly hired employees who are not senior executives, there have been no transactions in options to purchase our common shares or in our common shares that were effected during the past 60 days by Billserv or, to our knowledge, by any senior executive or director of Billserv. 11. STATUS OF ELIGIBLE OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF THE OFFER. Many of our eligible employees and eligible directors hold options with exercise prices significantly higher than the current market price of our common shares. We believe it is in our best interest to offer these eligible employees and eligible directors an opportunity to more effectively participate in the potential growth in our stock price. We could accomplish this goal by repricing existing options, which would enable eligible employees and eligible directors to immediately receive new options with an exercise price equal to our current market price, determined under the terms of the option plans. However, if we repriced existing options, we could be required under the financial accounting rules applicable to us to recognize significant charges in our financial statements relating to the repriced options, which would reduce our reported earnings for each fiscal quarter that the repriced options remained outstanding. This could have a negative impact on our stock price performance. We believe that we can accomplish our goals of providing eligible employees and eligible directors the benefit of choosing whether they want to receive options that over time may have a greater potential to increase in value, without the accounting consequence described above because: o we will not grant any new options to eligible employees or eligible directors who tender their eligible options in the offer until a day that is more than six months from the date we cancel eligible options tendered for exchange; o the exercise price of all new options will equal the market price of our common shares on the future date we grant the new options (determined under the terms of the option plans); and o we will not grant any other options to an eligible employee or eligible director who tenders eligible options in the offer that are cancelled in the exchange until after the date on which we grant the new options. 36 Eligible options we accept for exchange and acquire pursuant to this offer will be cancelled and will be returned to the pool of options available for future option grants under the applicable option plan. To the extent such options are not granted in connection with this offer, the options will be available for future grants to employees, directors and other eligible plan participants without further stockholder action, except as may be required by applicable law or the rules of The NASDAQ National Market or any other stock exchange on which our common shares are then quoted or listed. 12. LEGAL MATTERS; REGULATORY APPROVALS. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of eligible options and issuance of new options to eligible employees or eligible directors as contemplated by this offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein, other than such other approvals as have been or are expected to be obtained by us. We are unable to predict whether we may determine that we are required to delay the acceptance of eligible options for exchange pending the outcome of any such matter. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept any tendered eligible options for exchange is subject to conditions, including the conditions described in Section 6. 13. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of the material U.S. Federal income tax consequences of the exchange of eligible options and the grant of the new options pursuant to this offer applicable to Billserv and to those eligible employees and eligible directors who are U.S. citizens or residents of the U.S. This discussion is based on the now applicable provisions of the U.S. Internal Revenue Code and the regulations thereunder, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of option holders. Eligible employees and eligible directors who are U.S. citizens or residents of the U.S. who exchange eligible options for new options, as the case may be, will not be required to recognize income for U.S. Federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange for U.S. Federal income tax purposes. At the date of grant of 37 the new options, eligible employees and eligible directors who are U.S. citizens or residents of the U.S. will not be required to recognize income for U.S. Federal income tax purposes. The grant of options is not recognized as taxable income for U.S. Federal income tax purposes. Upon the exercise of a new option for cash, the eligible employee or eligible director will recognize compensation income, taxable as ordinary income, in an amount equal to the excess of (i) the fair market value of the shares purchased upon such exercise, on the date such option is exercised, over (ii) the exercise price of the shares purchased upon such exercise. The tax basis of any share received upon the exercise of a new option will be equal to the fair market value of such share on the date of exercise of such option. Upon any subsequent sale of such share, the eligible employee or eligible director will realize a capital gain (or loss) in an amount equal to the difference between the amount realized on the sale and such tax basis. An eligible employee's or eligible director's holding period for Federal income tax purposes for such share will commence on the date following the date of exercise of the option. The employer generally will be entitled to a tax deduction in an amount equal to the amount of compensation income, taxable as ordinary income, recognized by the eligible employee or eligible director as a result of the exercise of a new option or replacement option, as the case may be, in the year of recognition by the eligible employee or eligible director. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. 14. EXTENSION OF OFFER; TERMINATION; AMENDMENT. We may, from time to time, extend the period of time during which this offer is open and delay accepting any eligible options tendered to us by announcing the extension and giving oral or written notice of the extension to eligible employees and eligible directors and making an announcement thereof. If the offer is extended, then the grant date of the new options will also be extended if necessary to ensure that the new options are granted more than six months following the date tendered eligible options are cancelled. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any eligible options tendered for exchange upon the occurrence of any of the conditions specified in Section 6, by giving oral or written notice of such termination or postponement to eligible employees and eligible directors and making an announcement thereof. Our reservation of the 38 right to delay our acceptance and cancellation of eligible options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act, which requires that we must pay the consideration offered or return the eligible options tendered promptly after termination or withdrawal of a tender offer. Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in Section 6 has occurred or is deemed by us to have occurred, to amend this offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in this offer to eligible employees and eligible directors or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by an announcement of the amendment. In the case of an extension, the amendment must be issued no later than 9:00 a.m., Central Time, on the next business day after the last previously scheduled or announced expiration date. Any announcement made pursuant to the offer will be disseminated promptly to eligible employees and eligible directors in a manner reasonably designated to inform eligible employees and eligible directors of such change. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d) (2) and 13e-4(e) (3) under the Securities Exchange Act. These rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. 15. FEES AND EXPENSES. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of eligible options pursuant to this offer to exchange. 16. ADDITIONAL INFORMATION. We have filed with the SEC a Tender Offer Statement on Schedule TO, of which this offer to exchange is a part, with respect to the offer. This offer to exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials that we have filed with the SEC before making a decision on whether to tender your eligible options: 39 (a) Our Annual Report on Form 10-K for the year ended December 31, 2001, filed April 1, 2002; and (b) The description of our common shares contained in our registration statements on Form 10, filed on June 11, 1999, including all amendments or reports updating this description; and Form S-8, filed on February 23, 2000, including all amendments or reports updating this description. We hereby incorporate by reference additional documents that we may file with the SEC between the date of this prospectus and the expiration date of our offer. These include periodic reports, such as quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy statements. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the following SEC public reference rooms: 450 Fifth Street, N.W. 500 West Madison Street Room 1024 Suite 1400 Washington, D.C. 20549 Chicago, Illinois 60661 You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public on the SEC's Internet site at http://www.sec.gov. Our common shares are listed for trading on the NASDAQ National Market under the symbol "BLLS." We will also provide without charge to each person to whom a copy of this offer to exchange is delivered, upon the written or oral request of any such person, a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to: Billserv, Inc. c/o Marshall N. Millard Senior Vice President, General Counsel and Secretary 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 (210) 402-5030 between the hours of 9:00 a.m. and 4:00 p.m., Central Time. As you read the documents listed in Section 16, you may find some inconsistencies in information from one document to another. Should you find inconsistencies among the documents, or between a document and this offer to exchange, you should rely on the statements made in the most recent document. The information contained 40 in this offer to exchange about Billserv should be read together with the information contained in the documents to which we have referred you. 17. FORWARD LOOKING STATEMENTS. This offer to exchange and our SEC reports referred to above include "forward-looking statements." When used in this offer to exchange, the words "could", "may", "anticipates," "believes," "estimates," "expects," "intends," "plans" and similar expressions as they relate to Billserv or our management are intended to identify these forward-looking statements. These address our expected business, results of operations, future financial position, business strategy, financing plans and capital requirements, forecasted trends relating to our services or the markets in which we operate and similar matters and include statement based on current expectations, estimates, forecasts and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets. This information and such statements are subject to important risks, uncertainties and assumptions, which are difficult to predict. The results or events predicted in these statements may differ materially from actual results or events. Factors that cause results or events to differ from current expectations include, among other things: the impact of price and product competition; the dependence of new product development; the impact of rapid technological and market change; the ability of Billserv to make acquisitions and/or integrate the operations and technologies of acquired businesses in an effective manner; general industry and market conditions and growth rates; international growth and global economic conditions; the impact of consolidations in the industry; the uncertainties of the internet; stock market volatility; the ability of Billserv to recruit and retain qualified employees; the ability to obtain timely, adequate and reasonably priced component parts from suppliers and internal manufacturing capacity; the impact of the credit risks of our customers; the entrance by Billserv into an increased number of supply, turn-key and outsourcing contracts that contain delivery, installation and performance provisions, which, if not met, could result in Billserv having to pay substantial penalties or liquidated damages; the impact of increased provision of customer financing and commitments by Billserv; potentially higher costs actually incurred in connection with restructuring actions compared to the estimated costs of such actions; the inherent uncertainties underlying the estimates and assumptions used in calculating asset valuations; and other risk factors listed from time to time in the reports and other documents we file with the SEC. Billserv disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 18. Miscellaneous. We have not authorized any person to make any recommendation on our behalf as to whether you should tender or refrain from tendering your eligible options pursuant to the offer. You should rely only on the information contained in 41 this document or to which we have referred you. We have not authorized anyone to give you any information or to make any representations in connection with the offer other than the information and representations contained in this document or in the related acceptance letter. If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us. Billserv, Inc. 42 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND SENIOR EXECUTIVES OF BILLSERV, INC. The directors and senior executives of Billserv, Inc. and their positions and offices as of May 7, 2002, are set forth in the following table: Name Position and Offices Held ---- ------------------------- Michael R. Long Chairman of the Board and CEO Louis A. Hoch President and COO, Director Terri A. Hunter Executive Vice President and CFO, Director Tony L. Diamond Senior Vice President, Sales and Marketing Marshall N. Millard Senior Vice President, General Counsel, and Secretary Roger R. Hemminghaus Non-Employee Director E. Scott Crist Non-Employee Director Peter G. Kirby Non-Employee Director Richard B. Bergman Non-Employee Director In addition, the address of each director and board appointed officer is: c/o Billserv, Inc., 211 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232. 43 EX-99.(A)(2) 4 gex99a2-28507.txt FORM OF ACCEPTANCE LETTER Exhibit (a) (2) Form Of Acceptance Letter EXHIBIT 1 BILLSERV, INC. ACCEPTANCE LETTER PURSUANT TO THE OFFER TO EXCHANGE OPTIONS GRANTED TO ELIGIBLE EMPLOYEES UNDER BILLSERV, INC.'S 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN AND ELIGIBLE DIRECTORS UNDER BILLSERV, INC.'S 1999 NON-EMPLOYEE DIRECTOR PLAN HAVING AN EXERCISE PRICE OF $4.00 OR MORE FOR NEW OPTIONS THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., CENTRAL TIME, ON JUNE 11, 2002 UNLESS THE OFFER IS EXTENDED To: Billserv, Inc. Attention: Option Exchange Program c/o Marshall N. Millard 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 telephone: 210-402-5030 facsimile: 210-402-5155 Delivery of the signature page of this acceptance letter to an address other than as set forth above or transmission via facsimile to a number other than as set forth above or transmission via e-mail will not constitute a valid delivery. Pursuant to the terms and subject to the conditions of the Offer to Exchange dated May 10, 2002 and this Acceptance Letter, I hereby tender all of my options to purchase common shares of Billserv, Inc. having an exercise price of $4.00 or more that were granted to me under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan or Billserv, Inc.'s Non-Employee Director Plan that are outstanding on the expiration date of the Offer. To Billserv, Inc.: Upon the terms and subject to the conditions set forth in the Offer to Exchange dated May 10, 2002 (the "Offer to Exchange"), my receipt of which I hereby acknowledge, and in this Acceptance Letter (this "Letter" which, together with the Offer to Exchange, as they may be amended from time to time, constitutes the "Offer"), I, the undersigned, hereby tender to Billserv, Inc., a Nevada corporation (the "Company"), all of my options to purchase common shares of Billserv, Inc. (the "Common Shares") having an exercise price of $4.00 or more that were granted to me under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan or Billserv, Inc.'s 1999 Non-Employee Director Plan (the "Tendered Options") that are outstanding on the expiration date of the Offer in exchange for "New Options." The number of New Options to be granted in exchange for Tendered Options that are accepted for exchange and cancelled in the 44 Offer will be equal to the number of Tendered Options that are accepted for exchange and cancelled in the Offer. However, the Company will not issue any New Options exercisable for fractional shares. Instead, the Company will round down to the nearest whole number of New Options with respect to each grant of Tendered Options. Each option entitles me to purchase one Billserv, Inc. common share in accordance with the terms of the applicable option plan and instrument of grant. New Options issued in exchange for Tendered Options granted under the terms of Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan (the "Comprehensive Plan") will be subject to the terms of the Comprehensive Plan and to a new option instrument of grant to be issued by the Company. New Options issued in exchange for Tendered Options granted under the terms of Billserv, Inc.'s 1999 Non-Employee Director Plan (the "Director Plan" and, with the Comprehensive Plan, the "Option Plans") will be subject to the terms of the Director Plan and to a new option instrument of grant to be issued by the Company. Subject to, and effective upon, the Company's acceptance for exchange of the Tendered Options in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), I hereby sell, assign and transfer to, or upon the order of, the Company all right, title and interest in and to the Tendered Options. I hereby represent and warrant that I have full power and authority to tender the Tendered Options and that, when and to the extent that the Tendered Options are accepted for exchange by the Company, the Tendered Options will be free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof (other than pursuant to the applicable instrument of grant) and the Tendered Options will not be subject to any adverse claims. Upon request, I will execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the exchange of the Tendered Options pursuant to the Offer. I understand and acknowledge that: (1) I may tender all of my options granted under the Option Plans having an exercise price of $4.00 or more and that I am not required to tender any of such options in the Offer. However, I must tender all of such options (no partial tender of options is permitted). (2) All Tendered Options properly tendered prior to 5:00 p.m., Central Time, on June 11, 2002, unless the Company has extended the period of time the Offer will remain open (the "Expiration Date"), and not properly withdrawn that are cancelled in the Offer will be exchanged for New Options, upon the terms and subject to the conditions of the Offer, including my continued employment with, or service as a director of, the Company and the other conditions described in Sections 1, 5, 6 and 8 of the Offer to Exchange. (3) Upon the Company's acceptance of the Tendered Options for exchange, I understand that the instrument or instruments of grant to which the Tendered Options are subject will terminate automatically and the Company will terminate and cancel all then outstanding options thereunder. All New Options will be subject to the terms and conditions of the applicable Option Plan and the terms of a new option instrument of grant to be issued by the Company, a copy of which I will receive after the New Options are granted. (4) The New Options will be granted on the later of December, 12, 2002 and six months and one day following the date that eligible options are canceled, or promptly thereafter, to eligible employees who are actively employed on that grant date and eligible directors who are 45 non-employee directors of Billserv on that grant date. The number of New Options granted in exchange for cancelled Tendered Options will be equal to the number of cancelled Tendered Options cancelled in the Offer, rounded down to the nearest whole number of New Options with respect to each grant of Tendered Option. The New Options will have (a) an exercise price (also known as the grant price or subscription price) equal to 100% of the fair market price of the Company's Common Shares on the grant date of the New Options, determined under the terms of the Option Plans, (b) a term of ten years from the effective date of the grant of the New Options, subject to earlier expiration upon termination of employment, death or retirement, and (c) a vesting schedule as follows: each New Option will vest over an eighteen (18) month period, beginning on the grant date of the New Options. The first vest date will be six months after the grant date of the New Options, when one-third (33 1/3%) of each New Option will become vested and exercisable. The second vest date will be six (6) months after the first vest date, also for one-third (33 1/3%) of each New Option. The third and final vest date will be six (6) months after the second vest date, when the remaining one-third (33 1/3%) of each New Option will vest. (5) If I am an eligible employee, to be entitled to the New Options after my Tendered Options have been cancelled in the Offer, I must meet all of the following conditions: o I must be continuously and actively employed by the Company or on an authorized leave of absence from such employment from the date I tender my Tendered Options for exchange to the date of grant of the New Options; and o I must be actively employed by the Company on the New Option grant date or, if I am on an authorized leave of absence on the New Option grant date, I must return to such active employment before February 1, 2003; and o Prior to the new option grant date, I must not have: o received a notice of involuntary termination from Billserv, Inc.; or o elected to retire or entered into an agreement with Billserv, Inc. to retire. If for any reason I do not meet all of the foregoing conditions, I will not receive any New Options or any other consideration or payment for the Tendered Options. If I am on an authorized leave of absence on the New Option grant date and I return to active employment with the Company before February 3, 2003, I will be entitled to a grant of New Options within sixty (60) days of the date I return to active employment. The exercise price (also known as the grant price or subscription price) of the New Options will be equal to 100% of the market price of one of our common shares on the date of grant of the New Options, determined in accordance with the terms of the Option Plans. (6) If I am an eligible director, to be entitled to the New Options after my Tendered Options have been cancelled in the Offer, I must be a non-employee director of Billserv, Inc. from the date I tender my Tendered Options for exchange to the date of grant of the New Options, and I must be a non-employee director of Billserv, Inc. on the New Option grant date. If for any reason I do not meet all of the foregoing conditions, I will not receive any New Options or any other consideration or payment for the Tendered Options. The exercise price (also known as the grant price or subscription price) of the New Options will be equal to 100% of the market price of one of our common shares on the date of grant of the New Options, determined in accordance with the terms of the Option Plans. 46 (7) By tendering the Tendered Options pursuant to the procedure described in Section 3 of the Offer to Exchange and in the instructions to this Letter, I accept the terms and conditions of the Offer. The Company's acceptance for exchange of the Tendered Options will constitute a binding agreement between the Company and me upon the terms and subject to the conditions of the Offer. (8) Under certain circumstances set forth in the Offer to Exchange, the Company may terminate or amend the Offer and postpone its acceptance and cancellation of any Tendered Options. (9) If I choose not to tender all of my options that are eligible for tender under the Offer or my Tendered Options are not accepted for exchange, all such options shall remain outstanding and retain their current exercise price and vesting schedule. (10) The Company has advised me to consult with my own advisors (including my own tax advisors) as to the consequences of participating or not participating in the Offer. (11) I agree to all of the terms and conditions of the Offer as they appear in the Offer. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, my death or incapacity, and all of my obligations hereunder shall be binding upon my heirs, personal representatives, successors and assigns. Except as stated in the Offer, this tender is irrevocable. This letter must be completed and signed in the space below. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title must be specified and proper evidence of the authority of such person to act in such capacity must be submitted with this letter. I hereby tender all of my options to purchase common shares of Billserv, Inc. having an exercise price of $4.00 or more that were granted to me under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan or Billserv, Inc.'s 1999 Non-Employee Director Plan that are outstanding on the expiration date of the Offer. SIGNATURE OF OWNER X --------------------------------------- (Signature of Holder or Authorized Signatory- - See Instructions 1 and 4) Capacity: ------------------------------- Date: , 2002 ----------------------------- 47 Print Name: ----------------------------- Address: -------------------------------- -------------------------------- -------------------------------- -------------------------------- Telephone No. (with area code): ---------------------- Email Address: -------------------------- 48 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of Acceptance Letter. A properly completed and signed original of the signature page of this Letter (or a facsimile thereof) must be received by the Company at its address or facsimile number set forth on the front cover of this Letter on or before the Expiration Date. Only the signature page of this Letter is required to be delivered to the Company; you are not required to deliver the instruments of grant for Tendered Options or any of the other pages of the Letter. If you are an eligible employee employed at Billserv in San Antonio, Texas, the only acceptable method of delivery of the signed signature page is by hand delivery. If you are an eligible director of Billserv or are an eligible employee employed at Billserv anywhere else, the only acceptable method of delivery of the signed signature page is by hand delivery or fax. The method by which you deliver the signed signature page is at your option and risk, and the delivery will be deemed made only when actually received by the Company. Delivery by e-mail will not be accepted. In all cases, you should allow sufficient time to ensure timely delivery. Tenders of eligible options made pursuant to the Offer may be withdrawn at any time prior to 5:00 p.m., Central Time, on June 11, 2002. You must withdraw all Tendered Options; you may not withdraw only a portion of Tendered Options. If the Offer is extended by the Company beyond that time, you may withdraw your Tendered Options at any time until the extended expiration of the Offer. In addition, unless the Company accepts your Tendered Options before 5:00 p.m., Central Time, on July 9, 2002, you may withdraw your Tendered Options at any time after July 9, 2002. To withdraw Tendered Options we must receive the signature page of the withdrawal letter in the form attached to the end of the Offer document, or a facsimile thereof, signed by you while you still have the right to withdraw the Tendered Options. Withdrawals may not be rescinded and any Tendered Options withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless such withdrawn options are properly re-tendered prior to the Expiration Date by following the procedures described above. The Company will not accept any alternative, conditional or contingent tenders. All tendering eligible employees or eligible directors, by signing this Letter (or a facsimile of it), waive any right to receive any notice of the acceptance of their tender, except as provided for in the Offer to Exchange. 2. Tenders. If you intend to tender eligible options pursuant to the Offer, you must tender all of your eligible options that are outstanding on the Expiration Date. This means that you must tender all options granted to you under the Company's 1999 Employee Comprehensive Stock Plan or the Company's 1999 Non-Employee Director Plan having an exercise price of $4.00 or more. 3. Signatures on This Acceptance Letter. If this Letter is signed by the eligible employee or eligible director who is the holder of the Tendered Options, the signature must be by such employee or director. If this Letter is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted with this Letter. 49 4. Requests for Assistance or Additional Copies. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Letter may be directed to the Option Exchange Program, at the address and telephone number given on the front cover of this Letter. Copies will be furnished at the Company's expense. 5. Irregularities. All questions as to the number of eligible options to be accepted for exchange, and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of eligible options will be determined by the Company in its discretion, which determinations shall be final and binding on all parties. The Company reserves the right to reject any or all tenders of eligible options the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular eligible options, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No tender of eligible options will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. Important: To accept the Offer, the signed signature page to this Letter (or a facsimile copy thereof) must be received by the Company on or prior to the Expiration Date. You must deliver a properly signed paper copy of the signature page to this Letter in accordance with paragraph 1 of these instructions. 6. Important Tax Information. You should refer to Section 13 of the Offer to Exchange, which contains important tax information. 50 EX-99.(A)(3) 5 gex99a3-28507.txt FORM OF WITHDRAWAL LETTER Exhibit (a) (3) Form Of Withdrawal Letter EXHIBIT 2 BILLSERV, INC. WITHDRAWAL OF PREVIOUSLY TENDERED OPTIONS PURSUANT TO THE OFFER TO EXCHANGE DATED MAY 10, 2002 THE WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., CENTRAL TIME, ON JUNE 11, 2002 UNLESS THE OFFER IS EXTENDED To: Billserv, Inc. Attention:Option Exchange Program c/o Marshall N. Millard 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 telephone: 210-402-5030 facsimile: 210-402-5155 Delivery of this withdrawal letter to an address other than as set forth above or transmission via facsimile to a number other than as set forth above or transmission via e-mail will not constitute a valid delivery. Pursuant to the terms and subject to the conditions of the Offer to Exchange dated May 10, 2002, my acceptance letter and this withdrawal letter, I hereby withdraw the tender of all of my eligible options that I previously tendered pursuant to the offer to exchange and my acceptance letter. 51 To Billserv, Inc.: Upon the terms and subject to the conditions set forth in the Offer to Exchange dated May 10, 2002 (the "Offer to Exchange"), and my Acceptance Letter, dated , 2002 (the "Acceptance Letter" which, together with the Offer to Exchange, as they may be amended from time to time, constitutes the "Offer"), I tendered to Billserv, Inc, a Nevada corporation (the "Company"), all of my options to purchase common shares of Billserv, Inc. (the "Common Shares") with an exercise price of $4.00 or more that were granted to me under Billserv, Inc.'s 1999 Employee Comprehensive Stock Plan or Billserv, Inc.'s 1999 Non-Employee Director Plan that were outstanding on the Expiration Date (as defined below) (my "Tendered Options") in exchange for "New Options." Pursuant to the terms and subject to the conditions of the Offer, I understand that I can withdraw the tender of my Tendered Options prior to 5:00 p.m., Central Time, on June 11, 2002, unless the Company has extended the period of time the Offer will remain open (the "Expiration Date"). In addition, unless the Company accepts my Tendered Options before 5:00 p.m., Central Time, on July 9, 2002, I understand that I may withdraw my Tendered Options at any time after July 9, 2002. Accordingly, under the terms and subject to the conditions set forth in the Offer and this Withdrawal Letter (this "Withdrawal Letter"), I, the undersigned, hereby withdraw the tender of all my Tendered Options. I understand and acknowledge that: (1) I may not rescind my withdrawal and the Tendered Options that I hereby withdraw will be deemed not properly tendered for purposes of the Offer unless I re-tender those options prior to the Expiration Date by following the procedures described in Section 3 of the Offer to Exchange. (2) I must withdraw all of my Tendered Options; I may not withdraw only a portion of my Tendered Options. Upon withdrawal of my Tendered Options, I understand that all such options shall remain outstanding pursuant to their original terms and conditions, including their exercise prices and vesting schedule. (3) Neither the Company nor any other person is obligated to give notice of any defects or irregularities in any withdrawal letter, nor will anyone incur any liability for failure to give any such notice. The Company will determine, in its discretion, all questions as to the form and validity, including time of receipt, of withdrawal letters. The Company's determination of these matters will be final and binding. (4) All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, my death or incapacity, and all of my obligations hereunder shall be binding upon my heirs, personal representatives, successors and assigns. As stated above, this withdrawal may not be rescinded. (5) I agree to all of the terms and conditions of the Offer and this withdrawal letter. This letter must be completed and signed in the same name that appears on the Acceptance Letter previously submitted by the eligible employee or eligible director who tendered the Tendered Options. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title must be specified and proper evidence of the authority of such person to act in such capacity must be submitted with this letter. 52 Important: To withdraw the tender of tendered options, the signed signature page of this withdrawal letter (or a facsimile copy thereof) must be received by the Company on or prior to the expiration date. If you are an eligible employee employed at Billserv in San Antonio, Texas, a properly signed paper copy of the signature page of this letter must be delivered by hand delivery to the address specified above; if you are an eligible director or an eligible employee employed at Billserv anywhere else, a properly signed paper copy of the signature page of this letter must be delivered by hand delivery to the address specified above, or by fax to the number specified above. Delivery by e-mail will not be accepted. The method by which the signed signature page is delivered is at the employee's or director's option and risk, and the delivery will be deemed made only when actually received by the Company. In all cases, sufficient time should be allowed to ensure timely delivery. SIGNATURE OF OWNER X -------------------------------------------- (Signature of Holder or Authorized Signatory) Capacity: ----------------------------------- Date: , 2002 --------------------------------- Print Name: --------------------------------- Address: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ Telephone No. (with area code): ------------------------ Email Address: ------------------------------ 53 EX-99.(A)(4) 6 gex99a4-28507.txt EX-99.(A)(4) Exhibit (a) (4) Form Of Cover Letter To Employees and Directors Accompanying Offer To Exchange May 10, 2002 Dear Employee or Director Option Holder: Billserv, Inc. recognizes that many of the stock options granted under the Billserv, Inc. 1999 Employee Comprehensive Stock Plan (the "Comprehensive Plan") or the 1999 Non-Employee Director Plan (the "Director Plan") may not be providing the intended incentive to our valued employees and non-employee directors. In fact, the current economic and industry downturn has resulted in many of the stock options currently held by employees and non-employee directors being 'underwater', that is, with a grant price that is well above the current market price of our common shares. Accordingly, we are pleased to commence the offer to eligible employees and eligible directors to exchange certain currently outstanding options for new options expected to be granted on or about December 12, 2002. Our goal is to ensure that stock options continue to fuel employee and director commitment, motivation and enthusiasm, and our ability to attract and retain the talent so important to our long-term success. There are many important details regarding this voluntary offer contained in the Offer to Exchange and other related documents that accompany this letter, and you are urged to read these materials thoroughly. However, some key elements of the offer are worth highlighting: o Eligible options are only those options with an exercise price of $4.00 or more granted under either the Comprehensive Plan or the Director Plan. We will grant one new option for every option tendered for exchange and cancelled in the offer. o The per share exercise price of the new options granted to you will equal 100% of the market price of our common shares on the date we grant the new options. o The new options will vest over an eighteen (18) month period beginning on the new option grant date. The first vest date will be six (6) months after the new option grant date, when one-third (33 1/3%) of each new option will become vested and exercisable. The second vest date will be six (6) months after the first vest date, also for one-third (33 1/3%) of each new option. The third and final vest date will be six (6) months after the second vest date, when the remaining one-third (33 1/3%) of each new option will vest. Each new option will have a term that expires ten years after the new option grant date. o If you are eligible and decide to tender any of your eligible options, you must tender all of such options. Of course, the decision to participate is your own. This offer is not open to the public. It is extended only to eligible employees and non-employee directors of Billserv, Inc. as outlined in the Offer to Exchange. The information provided in the Offer to Exchange goes into greater detail on the eligibility requirements. There is no way to predict what the price of our common shares will be between now and on December 12, 2002, or thereafter. It is possible that the market price of our common shares on the date of grant of any new options will be higher than the current exercise price of eligible 54 options. Thus, eligible employees and eligible directors should make a decision to participate in this offer only after careful, considered thought. Billserv, Inc. makes no recommendation as to whether you should participate in this offer. Please thoroughly review the attached Offer to Exchange and related documents before making your decision of whether or not to participate in this offer. If you decide to tender your eligible options for exchange under this offer, you must properly complete and submit the signature page to the acceptance letter NO LATER THAN 5:00 P.M. CENTRAL TIME, JUNE 11, 2002, by hand delivery if you are employed at Billserv in San Antonio, Texas, and by hand delivery or fax if you are a non-employee director of Billserv or are employed at Billserv anywhere other than San Antonio. E-MAIL DELIVERY CANNOT BE ACCEPTED. You will be notified by e-mail or in writing after your documents are received. If you wish to print copies of the documents referred to in this offer, please send your request to the following e-mail address: offer@billserv.com. Submit your forms or forward any questions you might have about the offer to: 55 Billserv, Inc. Option Exchange Program c/o Marshall N. Millard 211 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 Telephone: 210-402-5030 Highly motivated employees and directors are critical to making Billserv, Inc. the most valued company to our customers, shareholders, employees and directors and we hope that this program will further that goal. We thank you for your continued efforts on behalf of Billserv, Inc. Sincerely, Michael Long 56 EX-99.(D)(1) 7 gex99d1-28507.txt EX-99.(D)(1) BILLSERV, INC. Exhibit (d)(1) 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN 1. PURPOSE. The purpose of this 1999 Employee Comprehensive Stock Plan (the "Plan") is to further the success of Billserv, Inc., a Nevada corporation (the "Company"), and certain of its affiliates by making available Common Stock of the Company to certain officers and employees of the Company and its affiliates, and thus to provide an additional incentive to such individuals to continue in the service of the Company or its affiliates and to give them a greater interest as stockholders in the success of the Company. Subject to compliance with the provisions of the Plan and the Code, Incentive Stock Options as authorized by Section 422 of the Code and stock options which do not qualify under Section 422 of the Code are authorized and may be granted under the Plan. Further, the Company may grant Restricted Stock, as defined below. 2. DEFINITIONS. As used in this Plan the following terms shall have the meanings indicated: (a) "Award" means an award of stock options (including Incentive Stock Options) or Restricted Stock, on a stand alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms of an Award, in the form prescribed by the Committee. (c) "Board" means the Board of Directors of the Company. (d) "Cause" shall mean, in the context of the termination of a Participant, as determined by the Board, in the reasonable exercise of its business judgment the occurrence of one of the following events: (i) conviction of or a plea of nolo contendere to a charge of a felony (which, through lapse of time or otherwise, is not subject to appeal); (ii) willful refusal without proper legal cause to perform, or gross negligence in performing, Participant's duties and responsibilities; (iii) material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise; or (iv) the unauthorized absence of Participant from work (other than for sick leave or disability) for a period of thirty working days or more during any period of forty-five working days; provided, further, within one year following a Change of Control, "Cause" shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to an appeal), or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise. (e) "Change of Control" shall be deemed to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 40% of the combined voting power of the Company's then outstanding voting securities, or (ii) at any time during the 24-month period after a tender offer, merger, consolidation, sale of assets or contested election, or any combination of such transactions, at least a majority of the Board shall cease to consist of "continuing directors" (meaning directors of the Company who either were directors prior to such transaction or who subsequently became directors and whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two thirds of the directors then still in office who were directors prior to such transaction), or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 40% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement of sale or disposition by the Company of all or substantially all of the Company's assets. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Committee administering the Plan described in Section 3 hereof. (h) "Common Stock" means the Company's common stock, par value $.001 per share. (i) "Continuous Status as an Employee" means that the employment relationship with any one or more of (i) the Company, (ii) any Parent, (iii) any Subsidiary has not been terminated or interrupted. (j) "Date of Grant" means the date on which an Award is granted under an Award Agreement executed by the Company and a Participant pursuant to the Plan. (k) "Disinterested Person" means a "disinterested person" as such term is defined in Rule 16b-3 promulgated under the Exchange Act or any successor provision. (1) "Effective Date" means the effective date of this Plan specified in Section 14 hereof. (m) "Exchange Act" means the Securities Exchange Act of 1934, as it may be amended from time to time. (n) "Good Reason" shall mean the occurrence of any of the following events: (a) removal from the principal office held by the Participant on the date of the most recent Award, or a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, but not including termination of the Participant for Cause; or (b) the Company otherwise commits a material breach of this Plan, or the Participant's employment agreement, if applicable; provided, however, that within one year following a Change of Control, "Good Reason" shall mean (i) removal from the principal office held by the Participant on the date of the most recent Award, (ii) a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, but not including termination of the Participant for cause; (iii) relocation of the Company's headquarters from the San Antonio, Texas metropolitan area, (iv) a material reduction of participant's compensation, or (v) the Company otherwise commits a material breach of this plan, or the Participant's employment agreement, if applicable. (o) "Incentive Stock Option" means an option qualifying under Section 422 of the Code. (p) "Parent" means a parent corporation of the Company as defined in Section 424(e) of the Code. (q) "Participants" means the employees and officers of the Company, its Subsidiaries and its Parent (including those directors of the Company who are also employees of the Company, its Parent or one or more of its Subsidiaries). (r) "Restricted Period" shall mean the period designated by the Committee during which Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered, which period shall not be less than one year nor more than two years from the Date of Grant. (s) "Restricted Stock" shall mean those shares of Common Stock issued pursuant to an Award that remain subject to the Restricted Period. (t) "Retained Distributions" shall mean any securities or other property (other than cash dividends) distributed by the Company or otherwise received by the holder in respect of Restricted Stock during any Restricted Period. (u) "Retirement" shall mean retirement of a Participant from the employ of the Company, its Parent, or its Subsidiaries, as the case may be, in accordance with the then existing employment policies of any such employer. (v) "Subsidiary" means a subsidiary corporation of the Company as defined in Section 424(f) of the Code. 3. ADMINISTRATION OF THE PLAN. The Board shall appoint a committee (the "Committee") comprised of two or more directors to administer the Plan. Only directors who are Disinterested Persons shall be eligible to serve as members of the Committee. The Committee shall report all action taken by it to the Board, which shall review and ratify or approve those actions that are by law required to be so reviewed and ratified or approved by the Board. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan, to make determinations with respect to the participation of Participants in this Plan, to prescribe the form of Award Agreements embodying Awards made under the Plan, and, except as otherwise required by law or this Plan, to set the size and terms of Awards (which need not be identical or consistent with respect to each Participant) including vesting schedules, price, whether stock options granted hereunder shall constitute an Incentive Stock Option, restriction or option period, post-retirement and termination rights, payment alternatives such as cash, stock or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements, to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner the Committee deems advisable for the administration of the Plan and make determinations pursuant to any Plan provision or Award Agreement, which shall be final and binding on all persons. The Committee may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee. 4. COMMON STOCK SUBJECT TO PROVISIONS OF THIS PLAN. Upon approval of this Plan by the directors and shareholders of the Company, the total number of shares to be subject to options under this Plan shall be 5,000,000 of the issued and outstanding common shares of the Company. Thereafter, an amount of additional shares to be subject to options shall automatically be available for award under this Plan, such that at no time shall the total number of shares subject to options under this Plan be less than five percent (5%) of the then issued and outstanding common shares of the Company. In all events, the total number of shares shall be subject to appropriate increase or decrease in the event of a stock dividend, split or reclassification of shares subject to this Plan. 5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to any Participant as the Committee shall determine from time to time. In determining the Participants to whom Awards shall be granted and the number of shares to be covered by each such Award, the Committee may take into account the nature of the services rendered by the respective Participants, their present and potential contributions to the Company's success and such other factors as the Committee in its sole discretion shall deem relevant. A Participant who has been granted an Award under the Plan may be granted an additional Award or Awards under the Plan, in the Committee's sole discretion. 6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may make Awards of stock options (including Incentive Stock Options and stock options that do not qualify as Incentive Stock Options) as described in Sections 7 and 8 hereof, and of Restrictive Stock, as described in Section 10 hereof. 7. OPTIONS AUTHORIZED. The options subject to Award under this Plan may be Incentive Stock Options or stock options that do not qualify as Incentive Stock Options (sometimes referred to herein as "nonqualified options" or "nonqualified stock options"). The Committee shall have the full power and authority to (i) determine which options shall be nonqualified stock options and which shall be Incentive Stock Options, (ii) grant only Incentive Stock Options or, alternatively, only nonqualified stock options, and (iii) in its sole discretion, grant to the holder of an outstanding option, in exchange for the surrender and cancellation of such option, a new option having a purchase price lower than that provided in the option so surrendered and canceled and/or containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan. Under no circumstances may nonqualified stock options be granted where the exercise of such nonqualified stock options may affect the exercise of Incentive Stock Options granted pursuant to the Plan. In addition to any other limitations set forth herein, (1) no Participant shall receive any grant of options, whether Incentive Stock Options or nonqualified stock options, exercisable for more than three hundred fifty thousand (350,000) shares of Common Stock during any one fiscal year of the Company and (2) the aggregate fair market value (determined in accordance with Paragraph 8(a) of the Plan as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year (under all plans of the Company and of any Parent or Subsidiary) shall not exceed one hundred thousand dollars ($100,000.00). 8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan shall be evidenced by an Award Agreement executed by the Company and the applicable Participant and shall contain such terms and be in such form as the Committee may from time to time approve, subject to the following limitations and conditions: (A) OPTION PRICE. The option exercise price per share with respect to each option shall be determined by the Committee, but shall in no instance be less than the par value of the shares subject to the option. In addition, the option exercise price per share with respect to Incentive Stock Options granted hereunder shall in no instance be less than the fair market value of the shares subject to the option as determined by the Committee. For the purposes of this Paragraph 8(a), fair market value shall be, where applicable, the closing price of the Common Stock on the Date of Grant of such option as reported on any national securities exchange on which the Common Stock may be listed. If the Common Stock is not listed on a national securities exchange but is publicly traded on the Nasdaq Stock Market's National Market or on another automated quotation system, the fair market value shall be the closing price of the Common Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq Over-The-Counter market, the fair market value shall be the mean between the closing bid and ask prices on any such system or market. If the Common Stock was not traded on the Date of Grant of such option, the nearest preceding date on which there was a trade shall be substituted. Notwithstanding the foregoing, however, fair market value shall be determined consistent with Code Section 422(b)(4) or any successor provisions. The Committee may permit the option exercise price to be payable by transfer to the Company of Common Stock owned by the option holder with a fair market value at the time of the exercise equal to the option exercise price. (B) PERIOD OF OPTION. The expiration date of each option shall be fixed by the Committee, but notwithstanding any provision of the Plan to the contrary, such expiration date shall not be more than ten (10) years from the Date of Grant of the option. (C) VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his successor in interest shall have any of the rights of a stockholder of the Company until the shares relating to the option hereunder are issued by the Company and are properly delivered to such optionee, or successor. (D) EXERCISE OF OPTION. Each option shall be exercisable from time to time (but not less than six (6) months after the Date of Grant) over such period and upon such terms and conditions as the Committee shall determine, but not at any time as to less than one hundred (100) shares unless the remaining shares that have become so purchasable are less than twenty five (25) shares. After the death of the optionee, an option may be exercised as provided in Section 9(c) hereof. (E) DISQUALIFYING DISPOSITION. The Award Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any share or shares of Common Stock issued to him pursuant to exercise of the option within the two-year period commencing on the day after the Date of Grant of such option or within the one-year period commencing on the day after the date of issuance of the share or shares to him pursuant to the exercise of such option, he shall, within ten (10) days of such disposition date, notify the Company of the sales price or other value ascribed to or used to measure the disposition of the share or shares thereof and immediately deliver to the Company any amount of federal income tax withholding required by law. (F) LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. An Incentive Stock Option may be granted to a Participant only if such Participant, at the time the option is granted, does not own, after application of the attribution rules of Code Section 424, stock possessing more than ten percent (10%) of the total combined voting power of all classes of Common Stock of the Company or of its Parent or Subsidiary. The preceding restrictions shall not apply if at the time the option is granted the option price is at least one hundred ten percent (110 %) of the fair market value (as defined in Section 8(a) above) of the Common Stock subject to the option and such option by its terms is not exercisable after the expiration of five (5) years from the Date of Grant. (G) RESTRICTION ON ISSUING SHARES. The exercise of each option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. (H) CONSISTENCY WITH CODE. Notwithstanding any other provision in this Plan to the contrary, the provisions of all Award Agreements relating to Incentive Stock Options pursuant to the Plan shall not violate the requirements of the Code applicable to the Incentive Stock Options authorized hereunder. 9. EXERCISE OF OPTION. (a) Any option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Award Agreement, (ii) full payment of the aggregate option exercise price of the shares as to which the option is exercised has been made and (iii) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Participant's payment to the Company of the amount, if any, that the Committee determines to be necessary for the Company to withhold in accordance with applicable federal or state income tax withholding requirements. (b) Upon Retirement or other termination of the Participant's Continuous Status as an Employee, other than (a) a termination that is either (i) for Cause or (ii) voluntary on the part of a Participant and without the written consent of the Company, a Parent, or any Subsidiary (b) a termination by reason of death, the Participant may (unless otherwise provided in his Award Agreement) exercise his option at any time within three (3) months after such termination of the Participant's Continuous Status as an Employee (or within one (1) year after termination of the Participant's Continuous Status as an Employee due to permanent and total disability within the meaning of Code Section 22(e)(3)), or within such other time as the Committee shall authorize, but in no event may the Participant exercise his Option after ten (10) years from the Date of Grant thereof (or such lesser period as may be specified in the Award Agreement), and only to the extent of the number of shares for which his options were exercisable by him at the date of the termination of the Participant's Continuous Status as an Employee. In the event of the termination of the Continuous Status as an Employee of a Participant to whom an option has been granted under the Plan that is either (i) for Cause or (ii) voluntary on the part of the Participant and without written consent, any option held by him under the Plan, to the extent not previously exercised, shall forthwith terminate on the date of such termination of the Participant's Continuous Status as an Employee. Options granted under the Plan shall not be affected by any change of employment so long as the holder continues to be an employee of the Company, a Subsidiary or a Parent. The Award Agreement may contain such provisions as the Committee shall approve with respect to the effect of approved leaves of absence. (c) In the event a Participant to whom an option has been granted under the Plan dies during, or within three (3) months after the Retirement or other termination of, the Participant's Continuous Status as an Employee, such option (unless it shall have been previously terminated pursuant to the provisions of the Plan or unless otherwise provided in his Award Agreement) may be exercised (to the extent of the entire number of shares covered by the option whether or not purchasable by the Participant at the date of his death) by the executor or administrator of the optionee's estate or by the person or persons to whom the optionee shall have transferred such option by will or by the laws of descent and distribution, at any time within a period of one (1) year after his death, but not after the exercise termination date set forth in the relevant Award Agreement. (d) If as of the date of termination of the Participant's Continuous Status as an Employee (other than as a result of the Participant's death) the Participant is not entitled to exercise his or her entire options, the shares of Common Stock covered by the unexercisable portion of the option shall revert to the Plan. If the Participant (or his or her designee or estate as provided in Section 9(c) above) does not exercise his or her options within the time specified in the Plan and the Award Agreement, the unexercised options shall terminate and the shares of Common Stock covered by such options shall revert to the Plan. 10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. (A) GENERAL. The Committee, in its sole discretion, may make Awards of Restricted Stock to selected Participants, which Awards shall be evidenced by an Award Agreement that contains such terms and conditions, including vesting, as the Committee may determine. As a condition to any Award of Restricted Stock hereunder, the Committee may require a Participant to pay to the Company the amount (such as the par value of such shares) required to be received by the Company in order to assure compliance with applicable state law. Any Award of Restricted Stock for which such requirement is established shall automatically expire if not purchased in accordance with the Committee's requirements within sixty (60) days after the Date of Grant. Subject to the terms and conditions of the respective Award Agreement, the Participant, as the owner of the Common Stock issued as Restricted Stock and any Retained Distributions with respect thereto, shall have the rights of a stockholder, including, but not limited to, voting rights as to such Common Stock and the right to receive cash dividends or distributions thereon when, as and if paid. Within the limits set forth in the Plan, an Award of Restricted Stock may be subject to such vesting requirements as may be fixed by the Committee. Vesting may be accelerated by a Change of Control. Vesting may also be accelerated upon death, permanent disability or Retirement. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Stock is made to a Participant whose employment or service is subsequently terminated by reason of death, permanent disability or Retirement or for such other reason as the Committee may provide, such Participant (or his estate or beneficiary) will be entitled to receive such additional portion of his Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, or Subsidiary, as applicable, through the date on which the next portion of the shares of non-vested Restricted Stock subject to the Award of Restricted Shares would have vested. Unless otherwise provided in the Award Agreement, in the event an Award of Restricted Stock is made to a Participant whose employment with the Company, Parent, or Subsidiary, as applicable, is subsequently terminated by the Participant for Good Reason or by the company, Parent or Subsidiary as applicable, other than for Cause, then in any such event, the Participant will be entitled to receive such additional portion of his or her shares of Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, or Subsidiary, as applicable, through the date on which the next portion of the shares of unvested Restricted Stock subject to the Award of Restricted Stock would have vested. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Stock is made to a Participant who subsequently voluntarily resigns or whose employment is terminated for Cause, then all such Restricted Stock and any Retained Distributions with respect thereto as to which the Restricted Period still applies shall be forfeited by such Participant and shall again become available for grant under the Plan. (B) TRANSFERABILITY. Restricted Stock and any Retained Distributions with respect thereto may not be sold, assigned, transferred, pledged, or otherwise encumbered during the Restricted Period, which shall be determined by the Committee and shall not be less than one year nor more than two years from the date such Restricted Stock was awarded. The Committee may, at any time, reduce the Restricted Period with respect to any outstanding shares of Restricted Stock and any Retained Distributions with respect thereto awarded under the Plan. Shares of Restricted Stock, when issued, will be represented by a stock certificate or certificates registered in the name of the Participant to whom such Restricted Stock shall have been granted and shall bear a restrictive legend to the effect that ownership of such Restricted Stock (and any related Retained Distributions) and the enjoyment of all rights appurtenant thereto are subject to the restrictions, terms and conditions provided in the Plan and the applicable Award Agreement. Each certificate shall be deposited by the Participant with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting Retained Distributions that shall be forfeited or that shall not become vested in accordance with the respective Award Agreement. The certificate or certificates issued for the Restricted Stock may bear such legend or legends as the Committee may, from time to time, deem appropriate to reflect the restrictions under the Plan for such Restricted Stock. (C) STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Each Participant will have the right to vote the Restricted Stock held by such Participant, to receive and retain all cash dividends and distributions thereon and exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exception that: (i) the Participant will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restricted Period applicable to such shares or portion thereof shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; (ii) other than cash dividends and distributions and rights to purchase stock which might be distributed to stockholders of the Company, the Company will retain custody of all Retained Distributions made, paid, declared or otherwise received by the holder thereof with respect to Restricted Stock (and such Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Stock with respect to which they were made, paid or declared) until such time, if ever, as the Restricted Period applicable to the shares with respect to which such Retained Distributions shall have been made, paid, declared or received shall have expired, and such Retained Distributions shall not bear interest or be segregated in separate accounts; and (iii) upon the breach of any restrictions, terms or conditions provided in the Plan or the respective Award Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions, such Restricted Stock and any related Retained Distributions shall thereupon be automatically forfeited. (D) MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in the Award Agreement, upon the occurrence of a Change of Control, all restrictions imposed on the Participant's Restricted Stock and any Retained Distributions shall automatically terminate and lapse and the Restricted Period shall automatically terminate; provided, however, that if the Change of Control occurs within six months of the Date of Grant the restrictions and Restricted Period shall terminate on the six month anniversary of the Date of Grant. 11. ADJUSTMENTS. The Committee, in its discretion, may make such adjustments in the option price, the number or kind of shares and other appropriate provisions covered by outstanding Awards that are required to prevent any dilution or enlargement of the rights of the holders of such options that would otherwise result from any reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, issuance of rights or any other change in the capital structure of the Company. The Committee, in its discretion, may also make such adjustments in the aggregate number and class of shares that may be the subject of Awards which are appropriate to reflect any transaction or event described in the preceding sentence. 12. AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable in order that the Awards granted thereunder may conform to any changes in the law or in any other respect that the Board may deem to be in the best interests of the Company; provided, however, that without approval by the stockholders of the Company voting the proper percentage of its voting power, no such amendment shall make any change in the Plan for which stockholder approval is required in order to comply with (i) Rule 16b-3, as amended, promulgated under the Exchange Act, (ii) the Code or regulatory provisions dealing with Incentive Stock Options, (iii) any rules for listed companies promulgated by any national stock exchange on which the Company's Common Stock is traded or (iv) any other applicable rule or law. Unless sooner terminated hereunder, the Plan shall terminate ten (10) years after the Effective Date. No amendment, suspension, or termination of the Plan shall, without a Participant's consent, impair or negate any of the rights or obligations under any Award theretofore granted to such Participant under the Plan. 13. TAX WITHHOLDING. The Company shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Company withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the fair market value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date; (ii) the election must be irrevocable; and (iii) the election must be subject to the disapproval of the Committee. To the extent required to comply with rules promulgated under Section 16 of the Exchange Act, elections by Participants who are subject to Section 16 of the Exchange Act are subject to the following additional restrictions: (i) no election shall be effective for a Tax Date which occurs within six (6) months of the grant of the Award; and (ii) the election must be made either (a) six (6) months or more prior to the Tax Date or (b) during the period beginning on the third business day following the date of release for publication for the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. 14. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the date (the "Effective Date") of the last to occur of (i) the adoption of the Plan by the Board and (ii) the approval, within twelve (12) months of such adoption, by a majority (or such other proportion as may be required by state law) of the outstanding voting shares of the Company, voted either in person or by proxy, at a duly held stockholders meeting or by written stockholder consent but in any event not before the effectiveness of the Company's Form 10 Registration Statement filed under the Exchange Act. 15. SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the Committee may, from time to time, make special provisions for one or more Participants respecting a possible Change of Control of the Company, a Subsidiary, or Parent, and, to the extent that any such special provisions made with the consent of the affected employee may have the effect of accelerating vesting of stock options granted under the Plan or removal of restrictions on Restricted Stock allotted under the Plan or the effect of preventing a termination or dilution of benefits, such special provisions shall be controlling over and shall be deemed to be an amendment of any inconsistent terms of the applicable Award Agreement. 16. MISCELLANEOUS PROVISIONS. (a) If approved by the Board, the Company or any Parent or Subsidiary may lend money or guarantee loans by third parties to an individual to finance the exercise of any option granted under the Plan to continue to hold Common Stock thereby acquired. No such loans to finance the exercise of an Incentive Stock Option shall have an interest rate or other terms that would cause any part of the principal amount to be characterized as interest for purposes of the Code. (b) This Plan is intended and has been drafted to comply in all respects with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If any provision of this Plan does not comply with Rule 16b-3, this Plan shall be automatically amended to comply with Rule 16b-3. (c) No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company, a Parent, or a Subsidiary. Nothing in this Plan shall interfere with or limit in any way the right of the Company, a Parent, any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company, a Parent, or any Subsidiary. (d) To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the laws of the State of Nevada or the property laws of any particular state. (e) In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning this Plan with respect to other Participants. (f) None of a Participant's rights or interests under the Plan may be assigned or transferred in whole or in part, either directly or by operation of law or otherwise (except pursuant to a qualified domestic relations order or, in the event of a Participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any Participant in the Plan shall be subject to any obligation or liability of such individual. (g) No Restricted Stock or any Retained Distributions shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, or other securities laws. (h) The expenses of the Plan shall be borne by the Company. (i) By accepting any Award under the Plan, each Participant or beneficiary claiming under or through him shall be conclusively deemed to have indicated his acceptance ratification of, and consent to, any action taken under the Plan by the Company, the Committee or the Board. (j) Awards granted under the Plan shall be binding upon the Company, its successors and assigns. (k) The appropriate officers of the Company shall cause to be filed any reports, returns, or other information regarding Awards hereunder or any Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Exchange Act, or any other applicable statute, rule or regulation. (1) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required. EX-99.(D)(2) 8 gex99d2-28507.txt EX-99.(D)(2) BILLSERV, INC. Exhibit (d)(2) 1999 NON-EMPLOYEE DIRECTOR PLAN 1. PURPOSE. The purpose of this Plan is to advance the interests of Billserv, Inc., a Nevada corporation (the "Company"), by providing an additional incentive to attract and retain qualified and competent directors, upon whose efforts and judgment the success of the Company is largely dependent, through the encouragement of stock ownership in the Company by such persons. 2. DEFINITIONS. As used herein, the following terms shall have the meaning indicated: (a) "Board" shall mean the Board of Directors of Billserv, Inc. (b) "Committee" shall mean the committee, if any, appointed by the Board pursuant to Section 12 hereof. (c) "Date of Grant" shall mean the date on which an Option is granted to an Eligible Person pursuant to Section 4 or Section 5 hereof. (d) "Director" shall mean a member of the Board or a member of the board of directors of a Parent on the date of adoption of the Plan. (e) "Eligible Person(s)" shall mean those persons who are Directors of the Company or a Parent and who are not employees of the Company or a Subsidiary. (f) "Fair Market Value" of a Share on any date of reference shall be the closing price on the business day immediately preceding such date. For this purpose, the closing price of the Shares on any business day shall be (i) if the Shares are listed or admitted for trading on any United States national securities exchange, the last reported sales price of Shares on such exchange, as reported in any newspaper of general circulation, (ii) if actual transactions in the Shares are included in the Nasdaq National Market or are reported on a consolidated transaction reporting system, the closing price of the Shares on such system, (iii) if Shares are otherwise quoted on the Nasdaq system, or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for such day of Shares on such system, and (iv) if none of clause (i), (ii) or (iii) is applicable, the mean between the high bid and low asked quotations for Shares as reported by the National Daily Quotation Service if at least two securities dealers have inserted both bid and asked quotations for Shares on at least five (5) of the ten (10) preceding days. (g) "Internal Revenue Code" or "Code" shall mean the Internal Revenue Code of 1986, as it now exists or may be amended from time to time. 1 (h) "Nonqualified Stock Option" shall mean an option that is not an incentive stock option as defined in Section 422 of the Internal Revenue Code. (i) "Option" shall mean any option granted under Section 4 or 5 of this Plan. (j) "Optionee" shall mean a person to whom an Option is granted under this Plan or any successor to the rights of such person under this Plan by reason of the death of such person. (k) "Parent" shall mean a parent corporation of the Company as defined in Section 424(c) of the Code, if any. (l) "Payment Date" shall have the meaning set forth in Section 2(a). (m) "Plan" shall mean this 1999 Non-Employee Director Plan of Billserv, Inc. (n) "Prior Plan" shall mean any plan which may have been in place prior to the execution of this plan. (o) "Share(s)" shall mean a share or shares of the common stock, ($0.001 per value, of the Company. (p) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. 3. SHARES AND OPTIONS. The maximum number of Shares to be issued pursuant to Options under this Plan shall be Five Hundred Thousand (500,000) Shares. Shares issued pursuant to Options granted under this Plan may be issued from Shares held in the Company's treasury or from authorized and unissued Shares. If any Option granted under this Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares. Any Option granted hereunder shall be a Nonqualified Stock Option. 4. AUTOMATIC GRANT OF OPTIONS. (a) Options shall automatically be granted to Directors as provided in this Section 4. Each Option shall be evidenced by an option agreement (an "Option Agreement") and shall contain such terms as are not inconsistent with this Plan or any applicable law. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver. (b) The Options automatically granted to Directors under this Plan shall be in addition to regular director's fees and other benefits with respect to the Director's position with the Company or its Subsidiaries. Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to continue to serve as a Director. 2 (c) No Options shall otherwise be granted hereunder, and neither the Board nor the Committee, if any, shall have any discretion with respect to the grant of Options within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor rule. 5. OPTION PRICE. (a) The Option price per Share of any Option granted pursuant to this Plan shall be one hundred percent (100%) of the Fair Market Value per Share on the Date of Grant. 6. EXERCISE OF OPTIONS. Options may be exercised at any time after the date on which the Options, or any portion thereof, are vested until the Option expires pursuant to Section 7; provided, however, that no Option shall be exercisable prior to six (6) months from the Date of Grant. An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option Agreement, (ii) full payment of the aggregate Option price of the Shares as to which the Option is exercised has been made and (iii) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Optionee's payment to the Company of the amount, if any, that the Committee determines to be necessary for the Company to withhold in accordance with applicable federal or state income tax withholding requirements. Pursuant to procedures approved by the Committee, tax withholding requirements, at the option of an Optionee, may be met by withholding Shares otherwise deliverable to the Optionee upon the exercise of an Option. Unless further limited by the Committee in any Option Agreement, the Option price of any Shares purchased shall be paid solely in cash by certified or cashier's check, by money order, with Shares (but with Shares only if permitted by the Option Agreement or otherwise permitted by the Committee in its sole discretion at the time of exercise) or by a combination of the above; provided, however, that the Committee in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Shares are received by the Company. 7. TERMINATION OF OPTION PERIOD. The unexercised portion of an Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (a) one (1) year after the date that an Optionee ceases to be a Director (including for this purpose a Director of a Parent) by reason of death of the Optionee, or; (b) the tenth (10th) anniversary of the Date of Grant of the Option. 8. ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event: 3 (i) appropriate adjustment shall be made in the maximum number of Shares then subject to being optioned under this Plan, so that the same proportion of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; and (ii) appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same proportion of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price. In addition, the Committee shall make such adjustments in the Option price and the number of shares covered by outstanding Options that are required to prevent dilution or enlargement of the rights of the holders of such Options that would otherwise result from any reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, issuance of rights, spin-off or any other change in capital structure of the Company. (b) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or exercise price of Shares then subject to outstanding Options granted under this Plan. (c) Without limiting the generality of the foregoing, the existence of outstanding Options granted under this Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. 9. TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide that such Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order and that, so long as an Optionee lives, only such Optionee or his guardian or legal representative shall have the right to exercise the related Option 10. ISSUANCE OF SHARES. No person shall be, or have any of the rights or privileges of, a stockholder of the Company with respect to any of the Shares subject to an Option unless and until certificates representing such Shares shall have been issued and delivered to such person. As a condition of any transfer of the certificate for Shares, the Committee may obtain such 4 agreements or undertakings, if any, as it may deem necessary or advisable to assure compliance with any provision of this Plan, any Option Agreement or any law or regulation, including, but not limited to. the following: (i) A representation, warranty or agreement by the Optionee to the Company, at the time any Option is exercised, that he or she is acquiring the Shares to be issued to him or her for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (ii) A representation, warranty or agreement to be bound by any legends that are, in the opinion of the Committee, necessary or appropriate to comply with the provisions of any securities law deemed by the Committee to be applicable to the issuance of the Shares and are endorsed upon the Share certificates. Share certificates issued to an Optionee who is a party to any stockholder agreement or a similar agreement shall bear the legends contained in such agreements. 11. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by a stock option committee (the "Committee") consisting of not fewer than two (2) members of the Board; provided, however, that if no Committee is appointed, the Board shall administer this Plan and in such case all references to the Committee shall be deemed to be references to the Board. The Committee shall have all of the powers of the Board with respect to this Plan. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board, and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. (b) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of this Plan. The determinations and the interpretation and construction of any provision of this Plan by the Committee shall be final and conclusive. (c) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the written approval of a majority of the members of the Committee. (d) This Plan is intended and has been drafted to comply with Rule 16b-3, as amended, under the Securities Exchange Act of 1934, as amended. If any provision of this Plan does not comply with Rule 16b-3, as amended, this Plan shall be automatically amended to comply with Rule 16b-3, as amended. (e) This Plan shall not be amended more than once every six (6) months, other than to comport with applicable changes to the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. 5 12. INTERPRETATION. (a) If any provision of this Plan is held invalid for any reason, such holding shall not affect the remaining provisions hereof, but instead this Plan shall be construed and enforced as if such provision never been included in this Plan. (b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEVADA EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY LAWS OF ANY STATE. (c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan. (d) Any reference to the masculine, feminine or neuter gender shall be a reference to such other gender as is appropriate. 13. SECTION 83(B) ELECTION. If as a result of exercising an Option an Optionee receives Shares that are subject to a "substantial risk of forfeiture" and are not "transferable" as those terms are defined for purposes of Section 83(a) of the Code, then such Optionee may elect under Section 83(b) of the Code to include in his gross income, for his taxable year in which the Shares are transferred to such Optionee, the excess of the Fair Market Value of such Shares at the time of transfer (determined without regard to any restriction other than one which by its terms will never lapse), over the amount paid for the Shares. If the Optionee makes the Section 83(b) election described above, the Optionee shall (i) make such election in a manner that is satisfactory to the Committee, (ii) provide the Company with a copy of such election, (iii) agree to promptly notify the Company if any Internal Revenue Service or state tax agent, on audit or otherwise, questions the validity or correctness of such election or of the amount of income reportable on account of such election, and (iv) agree to such withholding as the Committee may reasonably require in its sole and absolute discretion. 14. EFFECTIVE DATE AND TERMINATION DATE. This Plan is adopted as of January 4, 1999, but shall only become effective upon effectiveness of the Company's Registration Statement filed under the Securities Exchange Act of 1934, as amended. The effective date of any amendment to the Plan is the date on which the Board adopted such amendment; provided, however, if this Plan is not approved by the stockholders of the Company within twelve (12) months after the effective date, then, in such event, this Plan and all Options granted pursuant to this Plan shall be null and void. This Plan shall terminate on July 10, 2009, and any Option outstanding on such date will remain outstanding until it has either expired or has been exercised. 6 EX-99.(D)(3) 9 gex99d3-28507.txt EMPLOYEE STOCK PLAN [LOGO] BILLSERV, INC. (TM) ELECTRONIC BILLING SOLUTIONS [date] Exhibit (d)(3) On behalf of Billserv, Inc., operating under the 1999 Employee Comprehensive Stock Plan (the "Plan"), you (the "Employee") have been awarded a nonqualified option to purchase shares of common stock of Billserv, Inc. (the "Shares"). The option to acquire the Shares is awarded and granted upon the following terms and conditions, as well as those terms, conditions and limitations as set forth in the Plan. 1. The exercise price for each share of common stock is $ . 2. For so long as you are employed by Billserv, Inc. or any of its subsidiaries, the right to exercise such option shall vest as follows: a) 33-1/3% on [date] b) 33-1/3% on [date] and c) 33-1/3% on [date]. 3. The option granted under this Agreement shall be exercisable from time to time, as provided above, by the payment in cash or check to Billserv, Inc. of the exercise price of the shares, which the Employee elects to purchase. Billserv, Inc. shall not be required to transfer or deliver any certificate or certificates for shares of Billserv, Inc. common shares purchased upon exercise of the option granted under this Agreement until all then applicable requirements of law have been met. 4. Subject to the limitations imposed pursuant to the Plan (such as the three-month limitation on exercise following termination of participant's continuous status as an employee), the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void on [date]. If the Employee dies, the person or persons to whom his/her vested rights under the option shall pass, whether by will or by the applicable laws of descent and distribution, may exercise such vested option to the extent the Employee was entitled to exercise the option on the date of death, at any time within a period of one (1) year after his/her death, but not after [date]. Notwithstanding the above, the Employee's rights to the non-vested and vested options which have not been exercised, and all rights granted by this Agreement, shall in all events terminate and become null and void if the Employee is employed either as an employee or consultant by any company, joint venture, partnership or individual which the Committee determines, in its sole discretion, is in competition with Billserv, Inc. Stock Option Award [date] Page 2 of 3 5. During the lifetime of the Employee, the option and all rights granted in this Agreement shall be exercisable only by the Employee, and, except as Paragraph 4 above otherwise provides, the option and all rights granted under this Agreement shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such option or of such rights contrary to the provisions of this Agreement, or upon the levy of any attachment or similar process upon such option or such rights, such option and such rights shall immediately become null and void. 6. Notwithstanding the foregoing, upon the sale of substantially all of the assets of Billserv, Inc. or a change in control of forty percent (40%) of the outstanding voting shares of Billserv, Inc., all non-vested options shall immediately vest. 7. In the event of any change in the common shares of Billserv, Inc. subject to the option granted hereunder, through merger, consolidation, reorganization, recapitalization, stock split, stock dividend or other change in the corporate structure, without consideration, appropriate adjustment shall be made by Billserv, Inc. in the number or kind of shares subject to such option and the price per share. Upon the dissolution or liquidation of Billserv, Inc., the option granted under this Agreement shall terminate and become null and void, but the Employee shall have the right immediately prior to such dissolution or liquidation to exercise the option granted hereunder to the full extent not before exercised. 8. Neither the Employee nor his/her executor, administrator, heirs or legatees shall be or have any rights or privileges of a stockholder of Billserv, Inc. in respect of the shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such shares shall have been endorsed, transferred and delivered and the transferee has caused his/her name to be entered as a stockholder of record on the books of Billserv, Inc.. Nothing contained in the Plan or this Agreement shall confer upon the Employee any right to continue in the employ of Billserv, Inc. or any of its subsidiaries or interfere in any way with the right of Billserv, Inc. or its subsidiaries (subject to the terms of any separate agreement to the contrary) to terminate the Employee's employment or to increase or decrease the employee's compensation at any time. 9. No partial exercise of such options may be for less than 100 full shares unless the remaining shares that have become purchasable are less than 100 shares. In no event shall Billserv, Inc. be required to transfer fractional shares to the Employee. 10. Billserv, Inc. does not attempt to advise you on tax or other consequences arising from your acquisition of the Shares through the exercise of the option. However, attached you will find a copy of the Plan which explains the characteristics of stock options and certain tax matters with reference to nonqualified stock options. FOR SPECIFIC TAX CONSEQUENCES TO YOU, PLEASE CONSULT WITH YOUR TAX ADVISOR. Stock Option Award [date] Page 3 of 3 11. The terms and conditions of the Plan, unless expressly supplemented by this Agreement, shall continue unchanged and in full force and effect. To the extent that any terms or provisions of this Agreement are or may be deemed expressly inconsistent with any terms or conditions of the Plan, the terms of the Plan shall control. 12. The Employee hereby agrees to take whatever additional actions and execute whatever additional documents Billserv, Inc. may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Employee pursuant to the express provisions of this Agreement. 13. The rights of the Employee are subject to modification and termination in certain events as provided in this Agreement and the Plan. 14. This Agreement shall be governed by, and construed in accordance with, the substantive laws of the State of Nevada applicable to contracts made and to be wholly performed therein. 15. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. This Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede all previous written or oral negotiations, commitments, representations and agreements with respect thereto. EX-99.(D)(4) 10 gex99d4-28507.txt NON-EMPLOYEE STOCK PLAN [LOGO] Billserv, Inc. (TM) ELECTRONIC BILLING SOLUTIONS [date] Exhibit (d)(4) On behalf of Billserv, Inc., operating under the 1999 Non-Employee Director Plan (the "Plan"), you (the "Director") have been awarded a nonqualified option to purchase shares of common stock of Billserv, Inc. (the "Shares"). The option to acquire the Shares is awarded and granted upon the following terms and conditions, as well as those terms, conditions and limitations as set forth in the Plan. 1. The exercise price for each share of common stock is $ . 2. For so long as you are employed by Billserv, Inc. or any of its subsidiaries, the right to exercise such option shall vest as follows: a) 33-1/3% on [date] b) 33-1/3% on [date] and c) 33-1/3% on [date]. 3. The option granted under this Agreement shall be exercisable from time to time, as provided above, by the payment in cash or check to Billserv, Inc. of the exercise price of the shares, which the Director elects to purchase. Billserv, Inc. shall not be required to transfer or deliver any certificate or certificates for shares of Billserv, Inc. common shares purchased upon exercise of the option granted under this Agreement until all then applicable requirements of law have been met. 4. Subject to the limitations imposed pursuant to the Plan, the option and all rights granted by this Agreement, to the extent those rights have not been exercised, will terminate and become null and void on [date]. If the Director dies, the person or persons to whom his/her vested rights under the option shall pass, whether by will or by the applicable laws of descent and distribution, may exercise such vested option to the extent the Director was entitled to exercise the option on the date of death, at any time within a period of one (1) year after his/her death, but not after [date]. 5. During the lifetime of the Director, the option and all rights granted in this Agreement shall be exercisable only by the Director, and, except as Paragraph 4 above otherwise provides, the option and all rights granted under this Agreement shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such option or of such rights contrary to the provisions of this Agreement, or upon the levy of any attachment or similar process upon such option or such rights, such option and such rights shall immediately become null and void. Stock Option Award [date] Page 2 of 3 6. Notwithstanding the foregoing, upon the sale of substantially all of the assets of Billserv, Inc. or a change in control of forty percent (40%) of the outstanding voting shares of Billserv, Inc., all non-vested options shall immediately vest. 7. In the event of any change in the common shares of Billserv, Inc. subject to the option granted hereunder, through merger, consolidation, reorganization, recapitalization, stock split, stock dividend or other change in the corporate structure, without consideration, appropriate adjustment shall be made by Billserv, Inc. in the number or kind of shares subject to such option and the price per share. Upon the dissolution or liquidation of Billserv, Inc., the option granted under this Agreement shall terminate and become null and void, but the Director shall have the right immediately prior to such dissolution or liquidation to exercise the option granted hereunder to the full extent not before exercised. 8. Neither the Director nor his/her executor, administrator, heirs or legatees shall be or have any rights or privileges of a stockholder of Billserv, Inc. in respect of the shares transferable upon exercise of the option granted under this Agreement, unless and until certificates representing such shares shall have been endorsed, transferred and delivered and the transferee has caused his/her name to be entered as a stockholder of record on the books of Billserv, Inc. 9. No partial exercise of such options may be for less than 100 full shares unless the remaining shares that have become purchasable are less than 100 shares. In no event shall Billserv, Inc. be required to transfer fractional shares to the Director. 10. Billserv, Inc. does not attempt to advise you on tax or other consequences arising from your acquisition of the Shares through the exercise of the option. However, attached you will find a copy of the Plan which explains the characteristics of stock options and certain tax matters with reference to nonqualified stock options. FOR SPECIFIC TAX CONSEQUENCES TO YOU, PLEASE CONSULT WITH YOUR TAX ADVISOR. 11. The terms and conditions of the Plan, unless expressly supplemented by this Agreement, shall continue unchanged and in full force and effect. To the extent that any terms or provisions of this Agreement are or may be deemed expressly inconsistent with any terms or conditions of the Plan, the terms of the Plan shall control. 12. The Director hereby agrees to take whatever additional actions and execute whatever additional documents Billserv, Inc. may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Director pursuant to the express provisions of this Agreement. 13. The rights of the Director are subject to modification and termination in certain events as provided in this Agreement and the Plan. Stock Option Award [date] Page 3 of 3 14. This Agreement shall be governed by, and construed in accordance with, the substantive laws of the State of Nevada applicable to contracts made and to be wholly performed therein. 15. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. This Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede all previous written or oral negotiations, commitments, representations and agreements with respect thereto. -----END PRIVACY-ENHANCED MESSAGE-----